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The Federal Budget – Mixed Nuts
At the best of times, balancing the Federal Budget is a Houdini-like thankless exercise in any country of the world, the populace yearning for more services and facilities while the national exchequer has less and less (on a pro-rata basis) to pay for them. The Federal Finance Minister (or of State) is thus usually faced with a Catch-22 problem and it is rarely that innovative changes providing genuine relief to the common man have been proposed or enacted. Makhdoom Shahabuddin’s plight reminds one of the various examinations of the Army where it was required that the officer certify that he did not know the contents of the Question Paper BEFORE he took the Examination. Capt (Retd) Asghar A. Jilani, pushed into doing his “Lower Urdu” Examination, “certified that he did not know the contents of the Question Paper BEFORE, DURING or AFTER the Examination”. So let it be with the Makhdoom, who did a reasonable task of presenting the Budget but remained blissfully oblivious of the real facts, as did most of us, contained in his eloquent Presentation.
In the economic circumstances prevailing, successive Finance Ministers over the years, barring the salutary and honourable exception of Senator Sartaj Aziz, have been fairly predictable in providing the bureaucratic recourse of draconian answers to the mounting column of red ink as regards the Federal Debt. For political governments to take tough steps that would alienate the masses is a difficult proposition and as such an exercise in camouflage routinely becomes more important than the substance of the Budget propositions. In sum, while the economic circumstances were bad enough to warrant stringent measures, the political circumstances are worse. Given such overtones it is hard to condemn such tactics, all being fair in love and war! In a neat PR ploy, the rhetoric of the PM had prepared the masses to be ready for the worst, by not going the orthodox route with her implied threats she temporarily diverted the attention of the masses and thus stole the thunder from the Opposition. This has only delayed the inevitable, both with respect to mounting deficits and street reaction. What we have is much less in perceived taxation than we had expected but certainly much more than what is presently prevalent. For the moment the battle is one between perception and reality, for the moment perception has won out but reality will catch up sooner than later. If Ms Benazir cannot hold the line in the face of mounting Federal Debt we may eventually end up far worse than we would have been than if she had taken the avowed tough road. However even the greatest cynic has to acknowledge that she seems to have drawn first blood by not giving the Opposition immediate tangible evidence, in the first-reading the taxation is so well camouflaged that even experts have had trouble unravelling them even many days later. The PM gambled with the fact that by the time the people finally get to read between the lines as well as the fine print and begin to feel the sharp edge of the hidden steel it may be too late for the Opposition to take the masses to the streets. It shall be interesting to see whether Ms Benazir gets away with it. However A’s are in order to the PM both for packaging and sheer audacity. Whether she can sustain her proposed indirect taxation measures through the NA and “Special Interest Groups” is another matter. If she fails in getting her indirect measures approved, she (and the country) will have a splitting red headache. The Catch-22 is that if she manages to get it through the NA, the economy will suffer.
Initial Reviews
The visible primary difference between Caretaker and elected governments is that being unaccountable to the people and with no lasting commitment to the nation, the MQ Regime could enact any number of reforms and give forth any number of pledges in the comfortable knowledge that neither were these strictures binding on the successor government nor were they answerable to anybody. In a space of 90 days, a sophisticated image building exercise raised the expectations of the people, this was bound to become an albatross for any elected government in comparison. What was conveniently left unsaid was that though every elected government may have similar ambitions they are constrained in the implementation of their promised policies post-election by political realities.
Having been in business only about 45 days or so, Ms Benazir Regime should not be expected to conjure up any economic miracles. Furthermore, economic initiatives seldom make immediate headway towards their objectives even though measures that seem punitive will always get an instantaneous antagonistic response in the streets. Most of the “dirty work” as regards imposing additional limitation at the behest of the IMF had already been done by the MQ Administration, but the additional conditionalities agreed to by MQ is unfairly shackling the present incumbent for a three-year period. For the record, the revenues acquired by the extra MQ measures of taxation are projected at almost Rs 10 billion, an almost 50% backbreaking increase on the Rs 20 billion proposed and voted for in the annual Federal Budget guided through by the then Federal Finance Minister Senator Sartaj Aziz. Many more IMF conditionalities were accepted by the MQ Regime than were by former Finance Minister Sartaj Aziz in April 1993 but the IMF has still not released the Standby Facilities. In effect the IMF has conned us into a three year captivity without giving anything in return and now want more from the Bhutto Regime. The quality of life of our citizens will thus deteriorate further as their spending power decreases. In hindsight we should not have let IMF-pensioner MQ negotiate with his parent institution. Further the tax burden should have been better focussed towards the higher income group.
The Presidential Candidate
The process of electing a President by means of an electoral college has been shown up to be an absolutely ridiculous exercise that demeans the concept of democracy. Ten days before the actual election we do not even know the actual choice of the two major political parties, various permutations and combinations are being considered.
Of the serious candidates, only one, Ghulam Ishaq Khan, continues to remain extremely controversial. The PPP “jirga” that met him on Monday night at Anwar Saifullah’s house failed to convince him not to do a “PIF” on PPP. One does not see the PPP seriously considering his candidacy in the face of its own experience at GIK hands. However, politics brings together stranger bedfellows. PPP’s support for a GIK candidacy will be taken as a clear signal for confrontation with PML(N). Perhaps Akbar Khan Bugti from Balochistan excites somewhat similar emotions but in a much lesser degree for much different reasons, primarily that he has the potential of being an unguided missile. Even then he remains in the class of mostly honourable men who are inclined to become the President of Pakistan.
The Campaign Commences
Over the past few months the Quaid’s Mazar has been the subject of more attention than usual what with governments falling and forming. The Mazar makes for a good photo-opportunity, transient dignitaries find it necessary to do homage on Prime Time TV. To launch their election campaign, PML Nawaz Sharif Group chose the Mazar as their point of departure to coincide with Independence Day celebrations. While it was widely believed that PPP would launch their campaign from the Pakistan Memorial at Lahore, as soon as they heard about the PML (N) decision, they also decided that the Mazar would be their choice also. Frankly, it is unfair that they are being equated even for consideration but one supposes the Administration can read the PPP writing on Sindh’s walls.
While it is too early to really see anything emerging from the political kaleidoscope before the full list of candidates comes before us and electoral alliances/adjustments are complete, the PPP has got off to a fast start as they have been working towards a mid-term election for some time and have the necessary grassroots organisation. With their own shakedown now complete after taking stock of the breakaway factions, the PML(N) is putting together an extremely comprehensive and potent campaign mechanism. Spearheading the effort is the indefatigable Senator Sartaj Aziz as Acting Secretary General and Mushahid Hussain as Information Secretary. With these capable and hand-picked Nawaz loyalists as the nucleus, the PML campaign is now taking form and shape. One is struck by the sophistication of the effort being organised, in contrast to the disinformation and negative exercise that was conducted the last two times around, the present set-up gives an assured and mature complexion to the hurly-burly of the projected campaign ahead. Nawaz Sharif has shown an unerring instinct for choosing the right persons for critical posts (barring one or two glaring exceptions) and the Sartaj Aziz/Mushahid combine is in stark contrast to the better organised but frenetic appearance of the Bhutto campaign.
A Budget with Substance
The knowledgeable are usually convinced by substance, form is for public consumption. The Federal Budget can only be eulogized when considered in the light of circumstances prevailing that caused the GDP to register a lowly 3% growth rate, in the sense that it comes out better than anticipated by the public at large and the intelligentsia in particular. A complete package of direct and indirect taxes was predicted but the relief on being spared draconian measures makes the proposals look comparatively rosy. While the Budget contains much of substance in keeping with the existing economic realities, on few crucial issues it was terribly short on form, that which influences public perception. One cannot defend the indefensible but showing flexibility and dexterity on these issues, the Finance Minister moved quickly to defuse such anomalies before they became politically volatile and contentious much out of proportion to the main thrust of the Budgetary proposals.
The unenviable task before the Finance Minister was to restore the momentum of the government’s liberalisation programme as well as the confidence of free enterprise because these form the main fuel for the IJI’s economic strategy. In order to do this, he had to continue with emphasis on development while reducing tariffs across the board, a veritable Catch-22. By giving further incentives to industry, he signals his commitment to generate employment, he also had to shuffle with alacrity to keep his indirect taxation proposals from adding to the inflationary pressures. The Opposition in the National Assembly was quick to level the accusation that the Finance Minister had fudged the statistics, particularly covering up the deficit, which they claimed was more in the region of Rs 110 billion in comparison to the stated Rs 85 billion. We may be in an imperfect world and if the Honourable Senator has under-estimated the actual deficit, we believe that the Honourable Opposition has rather exaggerated it. In either case, the deficit is too large by half and the Administration would do well to keep it within reasonable limits or we may have to use wheelbarrows to carry the volume of cash required to bring back a loaf of bread a la Germany circa 1928. There are certainly severe inflationary pressures, some due to circumstances beyond the Government’s control but some that could have been avoided by correct prioritization after a deliberate analysis.
Silent Rage
The government of Nawaz Sharif was sacked on the evening of Sunday April 18, 1993. On the following day, as a reaction to the controversial Presidential action, the Karachi Stock Exchange (KSE) witnessed the largest fall in its share index in one day. Though it did not equal the October 1929 Black Tuesday crash on Wall Street, the fact of the precipitous “Black Monday” dive shook domestic and foreign investor confidence in the state of the economy.
The policies of the previous government were seen to be liberal and supportive of a conducive economic environment. By enacting far-reaching reforms to unshackle the economy from bureaucratic embrace, Nawaz Sharif had inspired sustained economic investment, particularly at the lower end of the economic spectrum. Indeed, this had blown the share market much out of proportion to its real value, corrections in a free market atmosphere had brought share prices to much more realistic levels before Monday’s headlong fall. The fall in share prices may be a reflection of investor confidence being shaken but given a GNP of US $ 50 billion approximately, a capitalisation of US $ 7 billion is relatively small. The unreal high point of 1700 points plus being reached in January 1992, the market index had come down to the 1200 threshold, a psychological benchmark that the former Finance Minister had set as an indicator of impending trouble. If the crisis continues share index may still fall through the 1000 point floor and as such while the Caretaker Government may be determined to change the form of the liberalising reforms enacted by the previous Regime, it has no elbowroom to change the substance as that would reflect adversely on the consistency of our own policies. As it is about Rs 7 billion in share prices has been wiped out and such a financial catastrophe may be difficult for generally new market players to absorb.
Woe Betide Us — Planet Lollywood?
The American Movie-Star Sylvester Stallone (along with a few other superstars) runs his restaurant PLANET HOLLYWOOD far better than we have been running our economy, which exercise is more akin to living in a fantasy world of figures, most of them fudged to fool everyone and his uncle, Uncle Michel Camdessus of the IMF among them. If we thought last year’s growth rate of 4.6% was bad enough, compare it to the 3.1% for this year. The macro-economic situation remains under tremendous pressure because of a number of deep-rooted structural failures as well as policy weaknesses. Economic performance has been short of targets for some years, the pressures on prices have continued unabated, fiscal deficit have remained stubbornly high and balance of payments deficit have been on the increase as a percentage of the GDP. Even last year’s growth rate of 4.6% was attributable more to divine nature than anything else, a bumper cotton crop and increases in the production of a number of minor crops. Really scary was the slump in manufacturing, small scale manufacturing registered 8% plus to offset the huge decrease of 1.25% in large scale manufacturing, a negative growth. The major pressures originated in the high budget deficit of 6.3% of the GDP, balance of payments deficit in excess of 7% and the alarming increase in prices plus of 13%. To put it very bluntly the state of the economy is abominable despite all our efforts at getting additional resources and some real progress in controlling expenditures. The challenges before our economic managers are very serious, the ability to meet these challenges depends upon identifying the root cause of the economic imbalance, that remains the substantially large fiscal deficit. Government revenues in last year’s Budget, in particular tax revenues, are insignificant in relation to the GDP despite all the additional taxation efforts. The success of Mr Sartaj Aziz’s proposals made on Friday evening depends not upon rhetoric alone but on reciprocity by the business community to the liberal concessions and on strict implementation of the reduced taxation measures. Unless we can increase the numbers in our tax net and get those who are already in the tax net to pay their actual dues, we will remain economically adrift searching for friendly shores who will disburse easy loans.