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June 16, 2021

Economy and ‘feel-good’ gimmickry

June 16, 2021

Within weeks of taking over the Ministry of Finance, Shaukat Tarin has remarkably created a ‘feel-good’ sense about an otherwise low-growth and high-inflation economy by apparently tinkering with the tight fiscal management of the IMF stabilization programme.

What we are witnessing, however, is nothing but a sham periodic rotation of changing gears from initial demand-management to relaxing supply side measures for political gains during the closing years of a government.

But it remains a gimmickry, despite the slight boosting of supply-side fiscal measures, in the absence of most warranted structural reforms. Emphasizing growth, Finance Minister Shaukat Tarin has tried to break with the straitjacket of demand management by allocating Rs900 billion to the annual Public Sector Development Programme – a 40 percent raise over the current year’s allocation of Rs630 billion. However, a paltry boost of Rs270 billion for growth may be mitigated by a customary lack of utilization of development funds and an expected shortfall in meeting the revenue target.

Notwithstanding the spin the finance minister has so successfully put on an otherwise timidly reviving economy, the illusion of growth that he has created is least sustainable. Since he had little fiscal space to manoeuvre, he is least to be blamed for what he had inherited. After transferring Rs3.412 trillion to provinces, the federal government will be left with Rs4.4 trillion; out of which the debt services of Rs3.1 trillion will consume almost three-fourths of its kitty and the remaining will be consumed by defence expenditure of Rs1.370 trillion. Consequently, expenditures on civil administration (Rs479 billion), pensions (Rs480 billion, including Rs360 billion on defence personnel) and PSDP will be met with deficit financing. In a Rs8.5 trillion budget, the fiscal deficit will almost be half of the total outlay amounting to Rs4 trillion (7.4 percent of GDP), which will be met by borrowing Rs4 trillion debt.

Given this financial dependency to meet a huge difference between expenditures and income, the debt has risen to Rs38 trillion, with the addition of Rs13 trillion in the last three years of the PTI government, which will almost double over the 2018 figure of Rs24.95 by the end of the PTI's tenure, leaving no fiscal space for the next government. Eventually, the next government will doubly accuse the Imran government of leaving behind much bigger deficits and debts.

In the given macro-economic situation, the finance minister has gone out of the way to provide all-round concessions over and above massive exemptions of Rs1.3 trillion given to both business and bureaucratic elites in the current fiscal. Yet he has levelled additional taxes of Rs383 billion, mostly indirect, affecting the people with the introduction of mobile phone charges, levies on petroleum and consumer products. It is unlikely that the FBR will be able to meet a revenue target of Rs5.829 for the next fiscal year.

Keeping fiscal deficit under 7.4 percent of GDP will depend on the additional revenue mobilization of Rs506 billion and a surplus of Rs570 billion to be kept by the provinces. Consequently, it seems the primary fiscal deficit will dangerously rise during the politically expedient spending spree in the remaining two years of the Imran Khan government. The current account surplus is primarily due to a reduction in imports and the rising remittances of Pakistani workers abroad – to $29 billion – despite a marginal increase in exports.

A higher growth target will boost the import bill and without substantially enhancing exports the current account deficit is likely to grow. Without broadening a narrow structure of exports with high value-added exports and substituting a broad range of imports, a favourable balance of trade cannot be achieved. We see no big effort to move towards export-led growth.

The PSDP should have been much larger to kick-start large infrastructure projects in water, hydel energy, power transmission lines, gas pipelines, railways, communication, industrial zones and huge social sector programmes for human resource development. The strategic focus should have been shifted towards building a modern industrial base, and transformation of a semi-feudal structure of agro-economy. But, Mr Tarin only made a passing reference to 26 projects amounting to $26 billion under CPEC. We are also still not even very clear about the ML-1 Railway project as to its start and when it becomes operational, despite the very precarious state of Pakistan Railways. Similarly, the hydel power and water reservoir projects have not received enough allocations to complete them on a fast track.

The allocations for health, education and human resource development remain extremely low, which will perpetuate human degradation and further worsen human development indicators. The utter lack of seriousness is reflected by the diversion of minimal funds to meet the Millennium (human) Development Goals to the constituency development of the ruling party’s MNAs and MPAs. A paltry raise in the minimum wage and 10 percent hike in the salaries of government employees show the apathy of our law-makers towards the plight of working people in Pakistan.

The minimum living wage should be set at Rs50,000 a month for a bare minimum subsistence to meet the expenses of a seven-member average family, which includes Rs21,000 on groceries, Rs10,000 on house rent, Rs10,000 for bills and Rs10,000 for children's education. The only exception is the expansion of the Benazir Income Support Program under the guise of the Ehsaas Program, which under the professional leadership of Dr Sania Nishtar has increased to Rs262 billion. But expanding it to over a dozen schemes will dilute its focus from poverty alleviation. Unfortunately, it carries the shortcomings of a charity approach which cannot eradicate poverty as a class phenomenon.

Essentially, the economic crises in Pakistan will continue to perpetuate unless fundamental issues of political economy are addressed. With a low investment-to-GDP ratio of 15.2 percent, savings-to-GDP ratio of 15.3 percent and lowest tax-to-GDP ratio of less than 10 percent, even a pro-business finance minister cannot do much. It’s a dependent, low-accumulation and low-growth economy burdened with a heavy superstructure of a client national security state.

The ruling power elite combines a neo-colonial establishment with rural and urban parasitic elites, who are interested in rent-seeking and tax evasion at a massive scale. Under the tutelage of international catastrophic capitalism, most of the parties of the ruling classes remain committed to the neo-liberal Washington consensus. Hence, there is no qualitative difference between the treasury and the opposition benches.

Pakistan struggles to catch up with the demands of the fourth industrial revolution, great leaps in artificial intelligence, and the scientific, communication and information fields. It is rather physically obsessed with the 'fifth-generation warfare' and ideologically fascinated with religious revivalism or eulogizing primitive accumulation of the late medieval times. Even now, the rulers are engaged in finding ways to perpetuate Pakistan’s role as a client state in exchange for subsidizing the deficits of a dependent unsustainable economy. Budget 2021-22 will sail through the National Assembly as Jehangir Tareen gets his ‘NRO’ in exchange for voting favourably, despite the dissenting voices of the civil society, and an opposition with a similar free market paradigm.

The writer is a senior journalist.

Email: [email protected]

Twitter: @ImtiazAlamSAFMA