The first meeting of the Economic Advisory Council (EAC) concluded with a promise of tough decision-making. All things aside, the first ‘tough’ decision came with the announcement of the removal of Dr Atif R Mian from the council after right-wing objections over his religious beliefs. This blatant cowering to the religious Right does not bode well for the much lauded EAC, which was supposed to comprise the cream of Pakistan’s economists and the private sector. On its part, the EAC has advocated tough decision-making in the next two months, which will lead to major changes in the Federal Budget 2018-19 to make it ‘realistic.’ One must wonder what would be more ‘realistic’ than the already skeleton budget announced by the last government.
It seems the PTI will pursue the mantra of austerity in its economic decision-making, which might balance the budget but will not win it any popularity. Three working groups on debt, fiscal challenges and current account deficit have been set up – and will meet the Finance Minister Asad Umar over the next week with their own proposals. The advisory council, made up of a plethora of international consultants, has told the PTI to forget political repercussions to make ‘tough decisions.’ This makes for worrying reading. If the PTI wants to continue on the populist route, it has already put itself in a bind. All its economic advisars are committed to cutting government down to size.
The focus on taking tough decisions now without political considerations is an old IMF mantra that has worked best with caretaker governments. There are other economic theories that do not believe that slashing spending is the best way out of an economic crisis. The EAC has advised revisiting the tax relief offered by the PML-N in its last budget – which in itself was a strange decision designed more to win votes than improve the fiscal position. However, the EAC has also suggested that the government should focus on taxation, rather than increasing electricity and gas prices. If the latter recommendation is a serious one, then the government must revise its recent decision to hike gas and electricity tariffs. This looks unlikely.
The finance minister has admitted it would be difficult to withdraw the tax relief. No new subsidies for Pakistan’s ailing export sector have been recommended, which creates doubts over what the government’s approach to improving exports will be. For now, PM Imran Khan has promised that political considerations will be thrown out of the window in economic decision-making. One wonders if the PM will choose to declare an economic emergency. That seems to be what the EAC has advised him to do when asking him to present the ‘true picture’ of the economy. We should certainly be provided a clear picture of the economic situation, but it is not as dark as the PTI seems to be painting. Economic growth has been up and inflation has been stable in the last five years. There is no need to press the panic button.