Financial Credibility
The enactment of the State Bank of Pakistan (SBP) Ordinance of October 5, 1993 by the Moeen Qureshi Administration giving the SBP considerable powers of autonomy with respect to monetary policy and the subsequent repeal by the present Ms Benazir regime as well as a fresh Ordinance replacing it thereof on Jan 1, 1994 has aroused quite a level of intellectual discourse within the economically knowledgeable both within and outside the country. The question of the impact on economic management has become of topical content and needless to say, well-wishers are looking forward to some kind of equitable working arrangement separating fiscal policy from monetary policy which would be in the best interest of the country’s economy.
The principal question to answer is what should be the level of autonomy of a Central Bank in a country like Pakistan? It is commonly believed that in developing countries Central Banks are (and must be) universally subordinated to the Government in the overall economic interest. The factual relationship could be the other way around, mainly that Third World countries have remained backward because among other things they have not allowed the development of various institutions vitally necessary for the emancipation of the economy. This is not much unlike the process of democracy building its roots in a country, dependant mostly on strong policies rather than the frequent holding of elections or number of political parties, etc. It is extremely important that developing countries promote institutions like the Central Bank, the various planning agencies and related financial institutions so that they can graduate into financial maturity. It is a tragedy that in Pakistan there is no tradition of commercial banks or other financial institutions having full-fledged Policy and Research Departments. Therefore, our Economic Analysis is generally very poor and usually not backed up by the information data that is the prime pre-requisite of carrying out such evaluation e.g. credit rating and project appraisal agencies in the private sector, it being understood that public institutions will always be under pressure to produce favourable data for the government in power. The aforementioned must constitute the backbone of correct decision-making for resource allocation by the government.
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 Economic Year in Review
A populist Government is always torn between two widely dissimilar choices, whether to go the popular route in avoiding the levying of taxes or to impose such taxation as may be necessary to offset necessary development. Ms Benazir’s Government chose the politically pragmatic route of avoiding taxes in fiscal 1989-90 and almost got away with it, one dare says that all conditions remaining equal, the Federal Government would not have had to resort to increasing fuel prices in the last quarter of the Budget year. The gamble did not come off, a combination of bad financial discipline, worsening world-wide economic situation, internal circumstances particularly strife affecting the port city of Karachi and the increasing threat perception from India because of the escalating situation inside Indian Held Kashmir (IHK) have combined to put all plans into an economic flat spin. The Government, therefore, resorted to a last gap fuel-hike but luckily for them the month of Ramzan timing coupled with the present apathy of the masses towards widespread protest, force multiplied by mass concern at the immediate Indian threat, has paid off.