Following increasing polarisation on political front, the chances of striking consensus on Charter of Economy has again diminished, clearly reflecting that the era of political instability will continue to haunt the struggling economy of Pakistan in months and years ahead.
All this is happening amidst Islamabad’s entering into new an International Monetary Fund (IMF) arrangement under 39-month Extended Fund Facility (EFF) to get bailout package worth. Under the tight scrutiny of the IMF program, the government will have to perform on quarterly basis by achieving all key performance criteria and conditions agreed with the Fund otherwise there will be two options either to seek a waiver or take additional measures to fill the gap.
So the task of getting an IMF loan has been accomplished successfully but the next challenge is even more difficult as it involves delivering consistently in the next 39 months to avoid suspension of the IMF program. It requires blessings of Uncle Sam (the US) as well as capability and capacity of our economic team to deliver on all key performance criteria and conditions.
Renowned economist Dr Kaiser Bengali said that Advisor to PM on Finance Dr Abdul Hafeez Shaikh had announced $38 billion worth of more loans down the line. “Should we celebrate? All loans will be for budgetary support, which means they will be for the government’s non development expenditures, not a penny will be spent on laying a single brick for creating any economic activities,” Bengali said. They would just repay past loans, inflating the debt balloon, he said adding that all such current and future loans would multiply the debt burden, requiring more loans and more dependence on global capital.
The opposition leader Shahbaz Sharif in his maiden speech at the National Assembly had offered for striking a Charter of Economy but the ruling Pakistan Tehreek-e-Insaf (PTI) always responded that the looters and plunderers wanted another National Reconciliation Ordinance (NRO) in exchange for normalising relations inside and outside the Parliament.
Even former finance minister Asad Umar, who currently holds portfolio of Chairman National Assembly Standing Committee on Finance, had argued during the proceedings of lower house panel that there was need to differentiate between criminals who plundered this country and demand of signing Charter of Economy. These two things should be decoupled. On other hand, the opposition parties argued that the political victimisation had reached to such an extent that there was no possibility for their sitting together with the ruling party and signing any Charter of Economy at this juncture of our history.
Now both sides have their own points of view, while political temperature is rising so high that expectations of a breakthrough will remain a pipe dream.
Now the incumbent regime is left with no other option but to deliver on economic front. The era of only bashing opposition and holding them responsible for all mess is not going to work under the IMF program. There will be total 8 reviews under 39 month EFF program out of which four reviews will be conducted on quarterly basis while remaining four will be held on bi annually basis. The first two reviews of this program will be quarterly basis.
The first and foremost challenge lying ahead before the PTI led regime is to ensure achieving of tax collection target on quarterly basis. If the Federal Board of Revenue (FBR) fails to deliver then the IMF mission will start demanding additional taxation measures through mini-budget or reducing expenditures to keep fiscal position within the set parameters where the IMF allowed the budget deficit to the tune of 7.3 percent of the GDP for the outgoing fiscal year.
There are increasing apprehensions that Pakistan might be going back into decade of 90s as Head of Institutional Reforms Dr Ishrat Hussain had termed it as the ‘lost decade’ and now again the country is in the grip of a volatile and fragile political atmosphere as well as instability on economic front.
There are four major challenges for the ruling party on the economic front including keeping fiscal side within the desired framework and avoid widening of imbalances between revenues and expenditures, curtailing trade deficit with focus on increasing exports and third managing debt and fourth reducing losses of state owned enterprises (SOEs), especially cash bleeding power sector and other giants such as PIA and Pakistan Steel Mills.
On fiscal side, the basis of fixing FBR’s target of Rs5,550 billion have already shaken as the tax machinery failed to achieve the revised downward tax collection target of Rs4,150 billion for last fiscal year 2018-19 ended on June 30, 2019. The government had initially envisaged tax collection target of Rs4,398 billion which was slashed down to Rs4,150 billion on the eve of budget for 2019-20. Currently, the FBR’s collection stood at Rs3,832 billion and it could go up by Rs10 billion more and could touch Rs3,842 billion for the last fiscal year till finalisation of revenue figures. If the FBR collects Rs3,842 billion it will reflect zero growth compared with the collection of corresponding year 2017-18, because the FBR had collected the same amount in the previous year as well. It will be the first time in recent history that the FBR’s collection growth will be zero. The collection of Rs3,842 billion against the revised target of Rs4,150 billion will also show revenue shortfall of Rs308 billion.
The FBR aims to collect Rs5,550 billion in the current fiscal year 2019-20 against possible revenue collection of Rs3,842 billion in last fiscal year 2018-19, reflecting that it requires achieving a growth of over 40 percent. The FBR had never achieved such mammoth growth in its history so Shabbar Zaidi-led team will have to do this miracle at a time when the economy is heading towards stagflation. The IMF has projected a GDP growth of 2.4 percent and inflation is skyrocketing to 13 percent in 2019-20.
Without increasing exports, the trade balance cannot be improved. If the trade and current account deficit did not reduce substantially, it would create more pressure on exchange rate because the IMF has placed a condition to jack up gross foreign currency reserves from $6.8 to $11.1 billion indicating that the SBP will somehow have to increase its reserves by $4.3 billion in the ongoing fiscal year. If the trade balance did not improve and Pakistani authorities remained unable to ensure non debt creating inflows then there will be no other option but to purchase dollars from the open market thus more pressures on exchange rate in the months ahead.
The incumbent regime is confused about overcoming losses of cash bleeding public sector enterprises as it is unclear whether it wants to move ahead with Sarmaya-e-Pakistan to revive these entities or with the privatisation plan. On energy sector, although recovery has improved to some extent however until and unless the structural issues and energy mix is not changed the monster of circular debt will continue to gather girth in the months and years ahead.
Overall, challenging times are ahead for the economy of Pakistan. Despite thin majority within the parliament the government has managed to pass the budget successfully, but now they will have to implement it in the next 12 months. Any major slippages will have direct consequences on the lives of 206 million people of Pakistan and no one can rule out the possibility of a full-blown crisis for the ruling elites on political front as well.
The writer is a staff member