Where Do We Go From Here?
The recent Federal Budget has increased the threshold of pain that the common man has to endure because of the misconceived policies that a “democratic” regime is implementing in horrendous fashion through an errant bureaucracy. Despite what Mr. VA Jafarey claims, and Mr. VA Jafarey has been making quite a number of claims to the contrary recently, the economy is in serious trouble. If it were not for our much vilified parallel economy, the same that everyone (and his/her IMF uncle) wants to document and cannot, we would be up the creek with only a begging bowl for a paddle. The Pakistani Rupee is sliding ominously against the US dollar and the country’s stock markets are barely kept afloat by frequent doses of massive public sector intervention. An economic disaster-in-the-making is not a startling revelation, not only does it cost the man in the street more to go on living, everyday drives him deeper into debt. The middle class cannot afford to die even, their hard-saved life insurance may not be worth the paper it is written on, given that the Ministry of Finance (MoF) has requisitioned almost all of State Life’s funds to create the instant liquidity Government of Pakistan (GoP) seems to acquire whenever an IMF deadline approaches. Creative accounting be damned, we have resorted to outright fudging to maintain the financial lie that all is “milk and honey” with respect to our economy.
The Economics of Despair
Just a day before the Presidential Address marking the beginning of the 3rd Parliamentary year for the present National Assembly, Mr VA Jafarey, Advisor to the PM on Finance and Economic Affairs, made a “surprise” announcement on prime time national media that the Federal Government had decided to devalue the Rupee by 7% and increase fuel prices by a commensurate amount while imposing some “temporary” regulatory duties (10% on dutiable and 5% on non-dutiable as long as the total tariff did not exceed 65%). Wheat, fertilizers and import of power generation plants under the energy policy (upto a maximum of 3000 MW) were exempted. The official US dollar parity with the Pakistani Rupee has weakened to Pakistan’s detriment from Rs31.85 to Rs 34.25, a difference of Rs 2.40. The Pakistani Rupee has thus depreciated Rs 3.28 or (10.59%) from Rs 30.97 in the four months since the Federal Budget in June 1995, unofficially it will be pegged closer to Rs 35 (an actual devaluation of 13%), the figure it should “officially” cross by end December 1995. One feels that the Government should have gone the whole distance in one go instead of creeping to that figure.
The Federal Budget 1995-96 – More Than Meets the Eye
To the common man, the areas of the Federal Budget that are important are those that affect his buying power. To that end, the Peoples Party’s propaganda machine is working overtime to convince the populace that the only increases proposed are the tax-hike with respect to petroleum and gas prices. Since the common man was already shelling out more for his PIA tickets and electricity (raised pre-Budget) while bracing himself for the anticipated rise in telephone and transportation prices (left to the mercy of the Corporations) it is a moot point whether the masses would have yelled with joy at the resounding theatricals of Makhdoom Shahabuddin, the Federal Minister for State, for Finance, the man elected by the PPP Government to present the Federal Budget prepared by others. Not known for any dramatic potential during his Sadiq Public School days, this better than average School-hockey player is obviously a late-starter to histrionics and was thus fighting a credibility problem even before he began his speech. For whatever it is worth he struck a sympathetic chord in his leader who gave him encouragement by approving glances throughout his performance (of reading the Budget). In the Post-Budget Press Conference, the Makhdoom acted as a traffic cop, deftly passing on almost all questions to V.A Jaffery (mainly) and Shahid Hasan Khan, Special Assistants to the PM, and thereby confirming what is universally known to all, that he knew nothing of the Budget before, during or after its Presentation (shades of Capt (Retd) A.A Jilani with respect to his Lower Urdu Paper in the Army).
In the 1994-95 Federal Budget, the PPP Regime had set out unrealistic targets. Failure to reach these as well as the deficit target of 4% of GDP was cause enough for criticism. The resultant shortfall was to the extent of Rs 40 billion in tax revenues. This brought the budget deficit of Rs 72 billion to well over Rs 100 billion. Ambitious targets combined with inflexible expenditures based on incorrect estimates invariably leads to frustration and a size of deficit for which the authorities are least prepared. Naturally this surprise upsets a lot of calculations on which economic forecasts are prepared, thus affecting the credibility of the system. Through the years, the rulers, whether political or military, get the blame while the bureaucrats who set up these wrong projections in the first place escape retribution, indeed are rewarded in many cases for their “flamboyance” in outrageous estimates and expertise in sleight of hand with financial figures.
A Mature Exercise with Credit to Both Businessmen and Govt
In response to the tough conditions imposed in the proposals for the Federal Budget, the nation’s business community observed a token two-day’s strike throughout the country. The protest was largely successful and remained peaceful. Transport plied normally, banks remained open and small businesses such as restaurants, bakeries, pan shops, medical stores, etc., were not affected. On the government’s part, except for some ludicrous attempts at disinformation and the occasional threat, there were no real ham-handed attempts to break the strike call. Within the limits imposed on its credibility parameters, Pakistan TV grudgingly acknowledged the success of the strike. All in all, this was a very mature exercise on which credit must go to both the sides, the businessmen in maintaining unity in registering its protest in a civilised manner and GoP for restraining its normally more baser urges. Notwithstanding the open-ended provocative threat made by the PM the night before the two-day strike, the expected bite did not follow.
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.