Money Matters

New team, old troubles

Money Matters
By Zeeshan Haider
Mon, 05, 19

After the change of the head as well as two key members of the government’s economic team, now all eyes are set on what kind of the annual budget they are going to announce and what would be the contour of the proposed International Monetary Fund (IMF) deal.

After the change of the head as well as two key members of the government’s economic team, now all eyes are set on what kind of the annual budget they are going to announce and what would be the contour of the proposed International Monetary Fund (IMF) deal.

The appointments of the governor State Bank of Pakistan and chairman Federal Board of Revenue (FBR) in all likelihood have been done on the recommendations of the newly inducted de facto finance minister Abdul Hafeez Sheikh, who would like his trusted men to be occupying the key posts so that he could comfortably implement his agenda.

Though, the bailout package with the IMF is yet to be finalised but for sure the part of the deal relating to the central bank was unlikely to face any difficulty in its implementation when an old hand from the international lender would be running the show in the top bank.

The exchange rate for the local currency versus dollar was a key sticking point between the government and the IMF negotiators as the latter wanted the market forces to determine the value of local currency, while the government team, as happened in the past, wanted some leeway in determining the local currency value to stop it from any free-fall.

But there are some reports that there could be more devaluation of the rupee in the coming weeks and months to encourage market forces to play their full part in ascertaining rupee’s value.

One of the most major challenges for the new economic teams, particularly the newly appointed head of the FBR, Shabbar Rizvi, would be to boost revenue collection which was dismally below the target in the current fiscal year.

Rizvi, a chartered accountant by profession, has a reputation of being a tax expert, has been part of many committees set up by the previous governments on tax reforms as well as on how to improve tax collections. While outside the government, he has been very vocal on introducing tax reforms and on broadening the tax base and now his actions would come under increasing scrutiny to see if he could translate his words into deeds.

He needs to revamp the entire FBR and take stringent measures to end corruption in tax collection exercise as well ensure maximum collection of the taxes in the country.

He would also come under spotlight for the measures he would take to broaden the tax base. In Pakistan, during successive governments only those paying their taxes honestly are burdened with more taxes, while the powerful lobbies and mafias have been successful in keeping themselves out of the tax net through political maneuvering and manipulations.

The million dollars question is whether the current economic team would be able to undertake revolutionary steps to revamp the taxation system and widen the tax base.

The advisor to the prime minister on finance as well as the two recently-inducted members of the economic team have an apolitical background and one would closely see if they would be able to undertake tough and much-needed economic reforms regardless of any political pressure.

Prime Minister Imran Khan has repeatedly maintained that economic revival is one of the top priorities of his government. In recent weeks, he has been saying that the country is passing through a very difficult phase due to tough economic situation, particularly the rising inflation, but has been assuring masses that this phase would be over in a couple of years.

According to an official announcement, the country is expected to register just 3.3 percent economic growth, well below the target of 6.2 percent in the current fiscal year because of poor performance by all key sectors of the economy.

Such dismal performance warrants strong reform-based measures to revive the economy.

But the real question is whether his government has the spine to stand to the political pressures exerted to block economic reforms.

Successive governments in Pakistan, however strong they were, have shied away from taking politically difficult steps to fix the economy for fear of public backlash.

The Pakistan Tehreek-e-Insaf (PTI) governments, neither in the centre nor in Punjab, politically the most important province of the country, as well as in Khyber Pukhtunkhuwa presently do not face any threat to their existence.

However, they face formidable opposition, particularly in the centre as well as in Punjab, and therefore might not be able to take any strong economic measure without the cooperation from the opposition.

The economic team of the PTI government made up of non-elected figures and technocrats who could suggest tough steps to turnaround the economy but it is the political leaders of the party who have to sell this reform agenda to the ordinary people.

It would be interesting to see how far the PTI leadership succeeds in pushing much-anticipated tough economic measures to be suggested by its economic team for the economic revival of the country.

The inflation is already high and there has been a growing unease over the high prices of the essential items as well as high utility prices.

If inflation further soars and there has been indication of a further rise in the utility prices in the coming months, the question is whether the government would be able to soothe the public anger.

The government has to tread a political tightrope by keeping a delicate balance between much-needed reforms and the public expectations for relief. Any imbalance could either bring political turmoil or further economic downturn.

The government’s political as well as economic teams need to work very closely to come up with a strategy that should ensure smooth implementation of its economic reform agenda without compromising on political stability and continuity.

The presentation of the annual budget for the next financial year most probably by the end of month is a major test for Imran Khan’s new economic team.

The PTI government presented two mini-budgets over the past eight months but could not achieve its objectives. However, now that it is going to present its first budget for a full fiscal year, it would come under increasing scrutiny to prove that it has learnt lessons from the previous mistakes and has been successful in evolving a strategy to put the country on the path to economic recovery and stabilisation.

The writer is a senior journalist based in Islamabad