To the mini-budget

As Pakistani officials sat down for technical-level talks with the IMF review mission at Islamabad on Tuesday, the visiting side wasted no time in making it clear that Islamabad must take ‘strict action’ to keep fiscal slippages in check to keep its budget deficit within the envisaged limits and return a modest primary surplus as laid down in its official budget document for the current fiscal year. In other words, the coalition government is being asked to enact a mini-budget forthwith. The government has already conceded two of its four sticking points with the IMF to pave the way for the mission’s fielding: free floating the rupee and collecting the full petroleum development levy (PDL) on petrol pumps. The remaining points of difference include a hike in gas and electricity prices and imposition of new taxes to finance any unfunded subsidies or unforeseen expenditures.

A mini-budget at this point should solve all these problems and, although it would be a politically fraught move, PM Sharif has no reason to be squeamish in the face of a mini-budget done right. It helps that his government is backed by the PDM multiparty coalition and has considerable influence among the country’s business and trading classes who stoke the engine of the economy. They know the inevitability of the tough calls the government is stalling at – as do all institutions of the country. All the government needs to do now is to remember that the Pakistani citizen is in no shape to shoulder any additional burden. This inevitably leads to the conclusion that now is the elites’ time to rise to the occasion and shoulder the additional burden. There is no reason why the PDM’s friends among the business and trading classes should not prove valuable allies in the government’s search for fresh revenue streams if they are approached the right way. A few months ago, there was some talk of a windfall tax on banks who raked in through the troubled foreign currency market last year and who continued their money-minting bonanza on Dar’s watch until he agreed to free-float the rupee a few days ago. What became of that? Then there is the option of cutting government expenditure. There are certainly other options that the government can explore.

As regards power and gas tariffs, one thing should be crystal clear: Political expediencies cannot be allowed to hold the nation’s energy security hostage. Selling gas and electricity at below-the-cost prices is nothing but political bribery, and these prices must go up not only to rid the sector of its crippling circular debt but also to enable it to stand on its own legs. This will no doubt push the already high inflation into the stratosphere, but all the government can do in this connection is to throw ample safety nets to protect the vulnerable classes. Finally, there is no denying that politics is to blame for a lot of the mess our economy is mired in today. Political and policy risk factor into every decision the international financial institutions and financiers make. This was amply clear at the meeting when the IMF mission brought up the question of political ownership of the deal. Leading the Pakistani side in talks, Finance Minister Ishaq Dar rightly asserted his government’s total commitment to parliamentary process and parliamentary ownership. Passing the prospective mini-budget through a presidential edict, therefore, should not be seen as an attempt to sidestep parliament but as a constitutional device to speed up the proceedings pending the more deliberate parliamentary process.

Pakistan needs political normalcy because Pakistan needs to return to work – and there is so much to do even apart from balancing the budget and beyond the current fiscal year. There is the mammoth task of reconstruction in the wake of the destruction wrought by last monsoon’s cataclysmic floods. There is the economy to be put on sustainable footing. There are the challenges of ensuring health and education for all. For now, however, everything must wait on the success of review talks underway at Islamabad with the IMF field mission to get the Extended Fund Facility (EFF) programme back on track, which is in turn hinged on the government’s preparedness to find fresh revenue streams. On to the mini-budget then, because Pakistan’s way forward right now leads through it.