The marriage between politics and economics is well established globally though in Pakistan political parties’ economic agenda varies little mainly due to the imposition of standard time bound quantitative conditions and structural benchmarks (that have become increasingly harsh and upfront as the economic fabric crumbles under the sustained elite capture of budgeted expenditure and source of revenue) imposed under an increasingly rigidly monitored International Monetary Fund (IMF) programme.
All recent Pakistani civilian administrations, dating back to 2008, have borrowed from the Fund, and the country is currently on the twenty-fourth programme with expectation of securing the twenty-fifth programme as and when the ongoing programme ends.
And yet reforms in the energy and the tax sectors, agreed in multiple programmes and multiple times within one programme, remain pending to this day.
The focus remains on increasing total revenue collection, which incidentally remains tilted heavily towards indirect taxes (accounting for over 80 percent of all collections today) as they are easy to collect though ignored is the fact that their incidence on the poor is greater than on the rich, a recipe for civilian discontent that may transform into wide spread unrest unless emergent remedial measures are taken.
Around 92 percent of the budget 2023-24 is earmarked for current expenditure whose major recipients remain: (i) civilian and military stakeholders, (ii) propping up a state employee pension system at the expense of the tax payers which does not require any employee contribution, and (iii) to incur massive loans, domestically if budgeted foreign inflows are not forthcoming as is the case these days with the budgeted 6.1 billion dollars from foreign commercial banks and issuance of debt equity no longer possible due to the country’s poor rating that, in turn, has upped the domestic interest bill.
The caretaker economic team presenting itself as one that took informed decisions must be held responsible for raising domestic borrowing by 185 percent - from 1 July 2023 till 19 January 2024 - against the same period the year before when Ishaq Dar as the finance minister not only irresponsibly raised current expenditure by 21 percent from what was budgeted by his predecessor and nemesis Miftah Ismail but also raised domestic debt servicing costs by 39.54 percent.
Only a little over three percent has been budgeted for the poor and vulnerable under the Benazir Income Support Programme in the current year, even though a recent World Bank report calculated poverty levels at a disturbing high of 40 percent. Additionally, subsidies accounted for around 7 percent of current expenditure but they, as in the past, were largely untargeted with more than 90 percent earmarked for the inefficiently-run energy sector (which includes payments to privately owned K-Electric because of tariff equalization).
It is also relevant to note that the decision by PML-N administration during its 2013-18 tenure to sign off on contracts with foreign independent power producers (IPPs) that favoured these producers over Pakistani consumers is not only contributing to ever rising electricity tariffs but also to failure to meet contractual obligations with the IPPs due to low exchange reserves.
The case of K-Electric shows that the mantra of privatization as the solution to all problems needs an urgent revisit particularly with reference to first making policy changes that would bar the privatized units from accessing subsidies at the taxpayers’ expense and ensuring that the private sector is not handed a monopoly.
What is also extremely disconcerting is the IMF’s visible support/approval not only for the revised budget for the current year (passed by parliament on 27 June 2023) but also for the highly inflationary measures taken by the caretakers in terms of upping domestic borrowing reflected by the staff level agreement (SLA) on the first review on 15 November 2023 under the ongoing Stand By Arrangement (SBA).
These words are being written on Friday past when the results of the elections are not yet finalized however lessons learned for whichever party, or as seems increasingly likely a coalition, forms the next government and presents the budget for 2024-25, is to acknowledge three facts: (i) the economic policies supported till now, with IMF support (given that the country is currently on its fourth programme since civilian rule was established in 2008) has strengthened elite capture, though the elite favoured differed between administrations, and weakened the quality of life of the common man; (ii) the economic czars of administrations since 2008, including the caretakers, have neither been able to think out of the box, read the capacity to increase leverage with the donors through slashing current expenditure, nor indeed exhibited any backbone to insist on implementation of politically challenging reforms; and (iii) independent domestic economists have been silenced by successive finance ministers through giving them a seat in an economic advisory council under the chair of the finance minister and many have either capitulated to a flawed policy decision by the finance minister at worst or resigned from the council at best.
The politics of hate has led to polarization of the electorate not only in several Western countries, including the US, but also in Pakistan.
Those who argue that the reason for the unexpected poor performance of what was considered as the chosen party, the PML-N, was the assumption by their voters that as the party was destined to win therefore they did not bother to vote, is perhaps a rather simplistic argument as study after study shows that the politics of hatred and insults do little to win voter sympathy (an approach favoured in every jalsa addressed by Nawaz Sharif and his daughter in the past month – an approach studiously avoided by Pakistan Peoples’ Party).
Their nemesis is disqualified, in jail after record-breaking speedy trials, his party symbol taken away, and no member of his party allowed to organize or address a jalsa.
The constant lament that the Sharif family was unfairly treated did not resonate with the public as Nawaz Sharif lived in the lap of luxury in London for the past four years as seen repeatedly during his interaction with the media and his refusal to provide the source of income of the family’s untold wealth.
What also did not resonate with the public was the rather inane narrative that the party (PML-N) prices were much lower in 2017 than today, as not only do prices rise over time but also because administrative measures that needed to be taken were deferred by the PML-N during its 2013-18 tenure (particularly gas price increase) and in 2018 the country suffered from the historically highest current account deficit of 20 billion dollars attributable to a severely flawed policy to control the rupee-dollar parity and a heavy reliance on foreign borrowing, compelling the next government to go on a Fund programme.
To conclude one is tempted to suggest academics of Pakistani descent currently employed in foreign universities, a minimum of three, to take up the challenge, rather than inducting retirees from multilateral agencies all of whom have exhibited a natural bias in favour of the donor conditions that are crippling the common man’s capacity to make ends meet.
It maybe a bold decision but the previous selections for finance ministers have simply exacerbated economic deprivation and a new approach is necessary – an approach that may prioritize foreign direct investment (FDI) inflows but unless accompanied by appropriate domestic economic policies will be unable to ensure that the general public benefits, as was the case in the contracts signed between 2013-18.
Copyright Business Recorder, 2024
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