Sustained flawed policies and mismanagement, spanning not just one administration’s tenure but several with the incumbent not an exception either, accounts for the current state of the economy. And disturbingly, the price of mismanagement has been and continues to be paid for by the general public. Mismanagement during just three tenures in the energy sector has ranged from rental power projects approved during the Zardari-led government (whose contracts a third-party audit declared were giving undue favour to the sellers) to establishing power generation plants in 2016 on the same terms and conditions as those in 2002 (envisaging prohibitive capacity payments in dollars), to failing to import RLNG on time attributed to the Khan administration. All three administrations as well as previous governments have failed to check transmission and distribution losses that remain well above the international levels though since 2014 efforts are afoot to contain theft but here too receivables are just too high resulting in fuelling of circular debt.
Pakistan is currently on the 23rd International Monetary Fund (IMF) programme with each subsequent programme harsher than the previous one as government after government either abandoned the programme midway due to political considerations or reversed reforms as and when elections became due. The only language that donors reckon our governments understand is to raise consumer tariffs to achieve the basic objective of utilities - notably full cost recovery - and our governments’ pledges to improve management and/or reduce theft have never been fulfilled. Today the circular debt is over 2.4 trillion rupees with the present government having inherited around 1.2 trillion rupees – a rise that reflects the compounding of the problem due to failure to usher in the agreed reforms. It is alleged that the Fund is insisting on zero addition to circular debt, which may sound too harsh from a political perspective as the focus is on raising charges, which would make the sector financially viable.
A similar problem is evident in the revenue sector. Changing Federal Board of Revenue (FBR) chairpersons has not either significantly widened the tax net nor indeed has it ended exemptions (an ordinance envisaging ending 330 billion rupee exemptions which is reportedly ready to be promulgated pending the successful completion of the sixth review with the Fund). While Shaukat Tarin is quite gung-ho about widening the net yet the donors remain sceptical as such pledges were made by previous governments and remained unmet.
What is more firmly in the government’s purview is the total annual expenditure and it is here that Tarin’s hands, like his predecessors’, are tied because he cannot reduce the budget outlay on defence (due to ongoing regional security concerns) or debt servicing (at the risk of default which in turn would raise the cost of borrowing) or pensions (with reforms envisaging employee contribution deferred) or indeed on civil administration if he wants cooperation from the bureaucrats. Meanwhile, the Prime Minister is pushing for raise in allocations for Ehsaas and Kamyab Jawan Pakistan programme due to be launched soon – expenditure that used to be slashed to meet the budget deficit targets. If the government can tighten its belt to meet its revenue then and only then can Tarin or for that matter any finance minister make a difference otherwise the country will go from one economic crisis to the next in ever shorter circles.
Dr Reza Baqir, the Governor State Bank of Pakistan, reiterated in the US that the fundamentals are improving and cited the rise in foreign exchange reserves to over 19 billion dollars compared with the under 9 billion dollars inherited by this government. This assessment is based on 50 percent rise in reserves sourced to borrowing including equity debt (sukuk/Eurobonds), swaps arrangements and outright borrowing. And, needless to add, that the erosion in rupee parity – from 152 rupees to the dollar in May 2021 to 174 rupees to the dollar today – reflects a policy decision as Pakistan is not on a free float but on a market based float defined by the Fund as a range considered appropriate by the central bank.
The sustained flawed policies over decades of postponing the hour of reckoning have not only made the donors reluctant to accept pledges for meaningful non-reversible reform, a situation exacerbated by lack of US support on their boards, but also due to the presentation of half-truths to the executive which prevents meaningful reforms. Undoubtedly, curses are like chickens; they always come home to roost.