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Economic notes

September 3, 2019

PM and economic management

Opinion

September 3, 2019

Prime Minister Imran Khan shows sporadic interest in economic management. One can count on one’s fingertips how many times he has spoken substantively on the subject.

Most recently, on the eve of the budget, when he could have supplemented or expounded the budgetary proposals and given the economic vision he is aspiring to realize, he decided instead to vent his anger on the House proceedings. Since then he seemed to have cut off from economic affairs.

It was only after the July results of balance of payments (BOP) were released, 19 August 19, showing a handsome improvement in current account deficit (CAD), that he sent out a tweet and issued a statement. His excitement was visible, as he claimed that his government’s policies had started yielding the desired results. After this, his interest in economic management has reignited. Lately he has been taking meetings almost on a daily basis and exhorting managers to double their efforts.

It is our earnest submission that economic management is in need of serious bolstering. The PM is the finance minister, the primary manager of the economy, and as such some responsibility of the portfolio devolves on him. Curiously, all his key economic managers are either unelected members of the cabinet or completely new to the government. The five key economic ministries (finance, commerce, industries, investment and petroleum) are headed by advisers or special assistants. Not surprisingly, they are not considered at par by their cabinet colleagues. Two other key managers, governor central bank and chairman FBR are new to the government and are handicapped to play any significant public role.

Much of the agenda required under the IMF programme is the responsibility of the Ministry of Finance to coordinate and deliver. Without a finance minister with political clout it would be unreasonable to expect that the programme can be effectively implemented. The prime minister has to put his entire weight behind the adviser finance to enable him to rise to the challenge of implementing a programme that is easily the toughest in the circumstances surrounding the economy.

Without such a support, economic managers will remain weak – affecting the general effectiveness of economic management. In contrast to this need, many things have happened that have weighed undermined their standing. A serious faux pas was when the MOS revenue was promoted to the rank of full minister soon after the budget without realizing that the revenue division was an inextricable part of the Ministry of Finance, and splitting it in this fashion would have led to a complete break-down of economic management. A few days later this was corrected.

However, this was again done at the expense of truncating the other part of the Ministry of Finance, the Economic Affairs Division (EAD). It has never happened in the past that a full minister is given charge of the EAD, though the MOS have been frequently appointed. With such important subjects like ADB, World Bank and all bilateral economic relations dealt with by the EAD, the advisor finance would face coordination problems together with an antipathy that his role has been unjustifiably curtailed chipping away his authority.

Another awkward situation which appears to be a coordination failure, but could also be indicative of deeper symptoms of discord in the cabinet ranks, is the announcement of petroleum product prices. The special assistant on information was impatient to declare reduced prices via Twitter on August 30, whereas the prices are adjusted in the evening of the last day of the month. Besides the fact that this was not her responsibility, the announcement created a situation that warranted immediate denial as otherwise petrol stations could have faced serious problems with customers. The Ministry of Finance sensibly issued a press note that stated: “The new POL prices being reported in a section of the media are not correct. Official press release in this regard shall be issued tomorrow evening”. Undoubtedly, a most embarrassing situation was averted.

The fact that unwavering attention of the premier is needed both to improve coordination as well as empower the economic managers is evident from the state of the economy which remains precarious. Although revealed after some lag, the required slow-down in the economy was accomplished last year; in fact it exceeded in reality. The slow-down reflected in CAD should not be considered desirable. It is a signal of accelerated slow-down. The stock market euphoria engendered because of the army chief’s extension has nearly reversed. We had noted at the time that without improvement in the fundamentals, there is no hope that the stock market would revive.

The interest rate should be reduced at the earliest. It is simply unwise to keep the rate at such an insane level. Core inflation, if it is targeted, has stayed at seven percent and thus there was no basis to hike the rate to 13.25 percent. Noted economist and former finance minister, Dr Hafeez Pasha has said that the policy rate should not be more than 10 percent. Thus there is exceptional space available to make adjustments in the rate if the government wants to give some breathing space to the economy.

The FBR has expressed satisfaction on revenue collection performance during the Jul-Aug period, which is misplaced. Against a required growth of 32 percent during the first quarter, the actual growth was only 15 percent. Nearly Rs500 billion is required to be collected in the month of September. Last year, Rs334 billion was collected. To achieve the September target, a growth rate of nearly 50 percent is required from last year. It must also be noted that taxation on petroleum has become excessive. On diesel, besides a 17 percent sales tax, Rs18 petroleum levy is also charged. In the last fiscal year, the government earned Rs300 billion in petroleum levy. Asad Umar had promised to remove the amendment in PL law that raised the rates but it seems it has somehow slipped in and is enforced with vehemence.

The main frictions with the business community are persisting across the board, particularly with small traders and shopkeepers. We have spent considerable space in these pages urging the authorities to wrap up these issues before the economy faces a bigger challenge of strikes and lock-downs.

The writer is a former finance secretary.

Email: [email protected]

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