Pre-Budget Expectations – The Proverbial Magic Hat
Balancing the nation’s books is more akin to Houdini trying to get out of a closed sack underwater with both hands and feet tied and chained. Pakistan’s Houdini, Mr Sartaj Aziz will spell out the economic destiny of the populace for the coming year in the National Assembly (NA) on Friday June 13 (lucky or unlucky, take your pick). Not only are we deeply in both external and internal debt, we are in dire danger of defaulting on our installments of both Principal and Interest thereof. With revenues decreasing instead of registering an increase, with the weather hostile to obtaining a semblance of food autarky, with a corrupt revenue-collection machinery dragging its feet, with traditional aid-givers adopting a wait-and-see attitude, etc, it is a brave, selfless man indeed who would happily function as Pakistan’s Finance Minister, a thankless job in the company of thankless colleagues and a demanding people. People (Dr Mahbubul Haq in the front row) are now waiting to see whether the man chosen to be the sacrificial lamb by the Nawaz Sharif regime will fall flat on his face or pull the proverbial rabbit out of the magic hat.
Fed up with fudged statistics by the Bhutto regime, neither the World Bank (WB) or the IMF were happily disposed towards Pakistan or ready to accept Pakistani numbers with any credibility. For the record WB’s President Mr Wolfenson has recently denied Ms Benazir’s accusation that the WB was an accomplice (along with Farooq Leghari and a host of others blamed by Ms Benazir for good measure not excluding the voters who voted against her) in the sacking of her corrupt regime. IMF’s Mr Camdessus reluctantly did concede that he had been taken in by her considerable “charm” and what Mr Sartaj Aziz stated during his visit to the US was “music to their years” (a direct quote) in the sense of long-term structural reforms of the economy. The deliberate mechanism needed to correct the imbalances in the financial sector involves downsizing the administrative structure, drastically reducing the size of the public sector, bringing in private sector entrepreneurial and cost-cutting measures into effective employment in the administration, etc. As a preamble to his budget proposals, the Finance Minister does not simply signify rhetoric, he means it. Because both the WB and the IMF seem to believe this, there is every likelihood that we will have access to almost US$ 1 billion in comparatively conditionality-free External Structural Adjustment Facility (ESAF) at 0.5% interest rather than the expensive conditionality-ridden Stand-By-Arrangement (SBA) at 6% plus what we got in 1993 due to Moeen Qureshi’s generosity to the people of Pakistan. Sartaj Aziz was close to an ESAF agreement in April 1993 when Ghulam Ishaq Khan sent Mian Nawaz Sharif packing the first time around. Instead of working ourselves into a frenzy about IMF conditionalities, we should accept that some of it is plain common-sense stuff, it is only in the matter of prices of foodstuffs and other essentials that we must stiffen our backs.
Government of Pakistan has erred on the wrong side in raising support prices at this time, a commensurate price rise of essentials that the man in the street can ill-afford. In a demand and supply situation, the relatively expensive food stocks continue to filter across the borders where they fetch a better price, it is our inadequacy to control hoarding and profiteering that has exacerbated the situation. The shelves may well be stocked with atta, sugar, ghee, dal, etc but most of the people will not have buying power. That is the stuff that breeds anarchy, of which revolutions are made. The prices of food essentials must be kept within reasonable limits, particularly “atta” even if it means heavy subsidies. Extra-Budgetary measures may involve getting rid of a serving Minister or two in Sindh and their cronies, including some PML stalwarts, who made an arm and a leg by exploiting the atta shortage to fill their own pockets. In the same vein, the cost of electricity, gas, water, transportation, etc must be kept within reach of the common man’s purse. Relief must be given to the lower end of the spectrum, can this be done without collecting adequate revenues elsewhere? That is the essence of the Houdini Act that Mr Sartaj Aziz must perform.
Everyone and his uncle knows that debt servicing and defence takes up the largest portion of the available cake. By privatization meaningfully and using the funds thus generated for debt reduction we may be able to bring this burden down. By putting professional management into the financial institutions as we are doing, we may be able to make them worthwhile assets. We must regain control of those units already privatised for which money has only been paid on paper. On the other hand have we as yet made any concerted effort to recover illegal wealth stashed abroad? Without that additionality, we can never get on top of our debt burden. The Defence Services have themselves volunteered to help the national effort by foregoing increased requisition in the coming year. Their bid for budget allocation is less than that covered by inflation. While in the current geo-political circumstances and in view of the threat perception thereof, this is an excellent sacrifice, the Defence Services can help in the overall budget reduction by further balancing the teeth-to-tail ratio, at the moment the support troops are much more as compared to the fighting men. There are many ways of increasing effectiveness even while downsizing, the focus of the military must be put back on things military, e.g. uniformed men have no business being in business such as units running bakeries, petrol pumps, etc. Within the available funds we have to somehow acquire high-tech stuff across the board, the axe must fall on things unprofessional.
A whole spate of regulatory duties issued by SROs in the end of May 97 have ensured that the Budget will not have such unpalatable items for the Finance Minister to deliver on Budget Day. With all due respects this cosmetic sleight of hand has been tried before and while it does fool some of the people some of the time, the knowledgeable masses hate being treated like fools. The people are prepared for sacrifices honestly, but they want their leaders to match them in practice, not in rhetoric alone. The sacrifices must be across the board and must be more at the higher end of the spectrum rather than at the lower end. Furthermore steps must be taken for the public perception to clearly acknowledge that the ratio of sacrifices asked for is fairly apportioned between the few rich and the many poor. One way of raising taxes is avoid budgeting for development. This can lead to other complications including recession. However Mr Sartaj Aziz has to focus on the importance of putting food in everyone’s stomach in supersession to development, in particular “atta” and sugar must remain within reach of pockets. While fresh taxes will probably be avoided, balancing the budget will be impossible without adequate monitoring of the collection of revenues.
We can only say “good luck” to Mr Sartaj Aziz, God knows that not only the Finance Minister but the people of Pakistan need divine intervention particularly the million or so who are to bear the burden of the rest of the population.
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