Federal Finance Minister Shaukat Tarin while addressing a seminar organised by Institute of Policy Reforms titled “Budget 2021-22: Balancing Stability and Growth” maintained that with the permission of the Prime Minister he intends to reach out to opposition parties to develop a consensus on the consistency of policies to achieve inclusive and sustainable growth in the long-term. In democracies different political parties support different economic strategies to achieve the desired common objective of inclusive and sustainable growth; however, Pakistan has been subjected to periodic economic crises during its 74-year history, sourced to unchecked deteriorating structural issues particularly in the tax and power sectors as well as mismanagement/corruption/nepotism across a broad spectrum of government engagement which require a consensus across party divide to resolve. At present, the country is on its twenty-third International Monetary Fund (IMF) programme and each subsequent IMF programme has been harsher than the previous on the general public precisely because of the sustained failure to address these underlying structural issues.
Tarin, unlike many of his predecessors, has the ability to: (i) think out of the box (as President Habib Bank of Pakistan he launched a gift scheme that mopped the deluge of rupees generated because of the freezing of foreign currency accounts in the wake of nuclear tests by Pakistan, with other banks following suit, though this scheme later was ruled to be against the precepts of Sharia); (ii) do business with the opposition (as minister for finance he was the architect of the seventh 2010 National Finance Commission award after convincing Shehbaz Sharif’s Punjab government to agree to a multiple criteria for the award which implied a lower share for the province – a concession that was to get the then President Zardari’s concurrence to do away with the constitutional provision that barred a third term for the position of prime minister); and (iii) to make his cabinet colleagues accountable (insisting on third party audit of the rental power projects). In other words, he has the necessary experience and personality to make his own side/supporters accountable, the ability to make a dent in the elite capture of our economy, and at the same time has engaged in give and take for national interest which requires engaging with the opposition. Needless to add, Shehbaz Sharif’s offer of reconciliation in the national interest has opened the door to engagement with the opposition on the budget proposals and one would hope that Tarin requests an invite from the PML-N President for the pre-budget seminar that is to be hosted by PML-N as revealed by Maulana Fazlur Rehman during his press briefing this Friday past.
Negotiations with the IMF on the sixth review are ongoing and there is no doubt that the budget proposals are under discussion at present. Three elements that may convince the IMF to consider a re-phasing of the harsh upfront conditions agreed by the Pakistani authorities in February this year are: (i) the particularly harsh onslaught of the third wave of the pandemic which has exacerbated the pressure on the country’s scarce resources notwithstanding the rise in revenue collection (with the budget deficit expected to once again be above 8 percent); (ii) its corollary, i.e., the need to spur the growth momentum backed by support for productive activity (government through public sector development programme and private sector through fiscal and monetary incentives); and (iii) last but not least containing the prices of two major items that account for a major portion of the kitchen budget of the people notably petroleum products and prices (impacting on transport costs) and electricity.
To convince the IMF that Pakistan means business Tarin has revealed that the government intends to raise FBR revenue by an additional one trillion rupees next year – not through taxing the already taxed but through eliminating unnecessary exemptions, allowing for third party audit which would make the charge of harassment by FBR redundant, gathering data on evaders based on their consumption patterns, and extending points of sales from existing 80,000 to half a million and announcing attractive prizes for those paying sales taxes through these points of sales linked to the FBR (a strategy successful in Turkey, Colombia and South Korea) and last but not least taking punitive actions against evaders with jail terms in addition to fines.
The issue, however, of containing expenditure would remain and it is unlikely that defence expenditure can be curtailed (the departure of US forces is expected to fuel intra-Afghan conflict that may spill over to Pakistan as well as continued pressure on our eastern borders), or debt servicing (especially if the G-20 debt relief is not extended for another year). In addition, a raise in salaries of civilian and military personnel in next year’s budget is expected and therefore any reduction in civilian government expenditure or pension system that is grandfathered but which needs to be amended to include employee contributions will also rise significantly. Grants and Ehsaas programme, the Prime Minister’s signature programme, is also likely to rise while federal PSDP would be raised to 900 billion rupees (against 650 billion rupees this year). The critical question is can Tarin contain the likely rise in expenditure to less than a trillion rupees of increased revenue to contain budget deficit? If he can convince the Fund then there would be discernable relief for the public in next year’s budget.
