Finance Minister Ishaq Dar was right in his observation that the economy, under the previous government, was running itself. Economic decision-making was mostly reactive. But, to then go on to say that the mess inherited by him, dampened his enthusiasm to put the PML-N agenda in place, is less than true. What he described as a “broken” economy had room for nearly every trademark programme of his party — laptops, Ashiana and other housing schemes, Nandipur Power Project, M-4, 8 and 9, Karachi Circular Railway, Prime Minister’s Youth Training Programme, Prime Minister’s Youth Skills Development Programme, Small Business Loans Scheme, Fee Reimbursement Scheme for Less Developed Areas, Prime Minister’s Micro Finance Scheme, continued provision of funds for parliamentarians under a favoured name and the Ramazan Package. With all this, the development budget goes up by as much as 50 per cent.

One had hoped that the budget would focus on reviving growth (mainly by softening the energy constraint) and balancing of books in the first year, along with a prioritised selection from amongst the political promises made in the elections. Instead, the PML-N has chosen to go the whole hog. The cuts in current expenditure still leave a revenue deficit of 1.2 per cent of GDP. With the addition of the proposed jump in the development budget, the PML-N government will be the first in the history of the country to start with a working fiscal deficit of 6.3 per cent, financed by costly domestic borrowing. It is likely to end up with a much higher deficit, given the piecemeal nature of the tax measures announced. Reliance on withholding taxes has been increased and specific and discretionary measures have been proposed rather than reforming the tax regime. In our tax culture, reducing the corporate tax rate and increasing the maximum rate for non-corporate businesses may not encourage corporatisation, but it will certainly reduce revenue. Measures to bring traders in the tax net are laudable. If the PML-N can’t negotiate with the traders, nobody can. There is, let it be noted, no clear statement in the budget speech regarding reformed general sales tax.

A concerted effort, as promised, can end circular debt in the short run. The point is to address the underlying causes to see a permanent end to it. Reforms announced to improve the performance of the mismanaged public enterprises, especially railways, require political will for implementation. Much more needs to be done than granting autonomy and placing the right man or woman on the right job. Mr Dar himself mentioned how an autonomous State Bank was unable to act on its own law to prevent the government from excessive borrowing.

I have been arguing in these columns that Pakistan does not need to rush to the International Monetary Fund. The issue is to convert the present net outflow of resources into a net inflow. Immediately, the 3G licences can be auctioned and the Etisalat asked to pay what is due from it. The budget promises as much. In parallel with austerity imposed on the current budget, nothing except the higher taxation of luxury vehicles has been announced on the import side. Privatisation and access to international capital market have also been mentioned. The finance minister expects to “soon sort our issues with International Financial Institutions (IFIs)” to resume normal flows. True, the finance minister has presented a pro-market budget, but its macroeconomic framework will be a hard sell for the IFIs, unless the soft-peddling on the Iran-Pakistan gas pipeline is part of a quid pro quo. After all, the economics of kashkol-breaking is not just a matter of showing enthusiasm for it.

Published in The Express Tribune, June 14^th, 2013.

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The octogenarian Mahmud Mirza is an old Pakistan Tehreek-e-Insaf (PTI) hand. He has been arguing with me that the PTI’s main strength is the radical economic content of its manifesto. This content remained underexploited at the hustings. Hence, it’s less than expected performance in the elections on May 11, especially among the poor and deprived youth. Writing just before the elections in these columns, I had described this content as the unhidden agenda of the PTI. After the elections, an interesting question is: what will be the PTI line as a government in Khyber-Pakhtunkhwa (K-P)?

There are three focus areas of reform — land, industry and grassroots participation. The manifesto proposes to implement the land reform laws, earlier declared un-Islamic by the Shariat Bench of the Supreme Court. There is a commitment to end benami and distribution of the resumed land to the landless. This is in sharp contrast with the PML-N’s emphasis on corporate agriculture. In industry, the manifesto prefers small and medium enterprise and rural and cottage industries over big business, again a difference of emphasis compared with the PML-N. It is these enterprises that had played a major role in the development of Japan and East Asia. In Pakistan, over 70 per cent of non-agricultural employment is provided by informal activity. In matters of governance, the PTI wants to empower the lowest tier. Seen together, these three initiatives reject the trickle-down approach and embrace inclusive growth. The mass of the population deserves much more than a trickle. The PTI approach would make the “little” men and women in trade, industry and agriculture the growth-makers. Growth, so achieved, will be equitable as well.

All this sounds nice but not as radical as Mirza Sahib thinks. In our context, however, even this minimal change has not been attempted seriously. Does the PTI have the jurisdiction and the will to do it? After the Eighteenth Amendment to the Constitution, there is nothing that stops the PTI to go all out for its programme in K-P. Education and health, the areas where the PTI wants to introduce profound changes, are completely in the provincial domain. Industry is also a provincial subject. In the case of K-P, this is not enough. The private sector has shied away from investing in large-scale manufacturing in the province because of its remoteness. Industrial estates set up on the basis of special tax concessions were bound to be disaster stories. The programme of small industrialisation conceived by the PTI is perhaps, the only programme of industrialisation that can work in the special conditions of K-P. The Seventh National Finance Commission Award provides enough resources to ensure a supportive role of the state by providing infrastructure and basic social and civic services. Any deficiency can be met by improving the ridiculously low yields of the provincial taxes. In particular, the PTI can lead the way by demonstrating that agricultural income tax is a doable project. Property tax is another treasure waiting to be discovered. If the provincial government lives up to the promise of being incorruptible and transparent, the rupee will be stretched further.

As is obvious, the PTI has no excuse to hide behind the argument that a national manifesto of change cannot be fully implemented in a province. Its economic programme is a good fit for the provincial domain. The major constraint will be the unceasing cycle of violence. While law and order is a provincial responsibility, the nature of the prevailing violence requires a national policy to counter it. The murder of its own MPA, Fareed Khan, should lead to some soul-searching within the PTI.

Published in The Express Tribune, June 7^th, 2013.                                                                                          

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The elections of 2008 and 2013 have been lost by incumbents because of load-shedding. The next government has been chosen by the electorate for its reputation for completing projects it fancies, come what may. Naturally, it expects the same to see the end of load-shedding. So deep is the penetration of the power related anger in the public at large that even a hint of the continuation of the inaction of the past may bring the government down sooner than later. Pakistan may be among the countries with the lowest consumption of energy per capita, but every power failure transmits the message of incompetence to almost all households in a split second. The vibes coming from the PML-N suggest that the Mian brothers are suffering from too much advice.

The worst piece of advice was on load-shedding. Nawaz Sharif went public with describing load-shedding as problem number one. But he would not commit on a deadline. He made fun of Shahbaz Sharif for giving such deadlines. Fair enough, if he himself had not given deadlines on other issues. Why, might one ask, have a programme for the first 100 days of government? Is this laundry list even necessary? There are only three issues that deserve the fullest attention of the government in the first 100 days: load-shedding, load-shedding and net outflow of capital. For the rest, work should start on a financeable medium-term programme. By announcing the finance minister first and the energy minister afterwards, the leadership seemed indecisive about the order of priorities.

By luck, some new power projects started by the previous government might mature in 1,000 days. The public understands that new supply cannot be added to the system in the immediate or near term. What is entirely possible in 100 days is to take effective measures on three counts — conservation, efficiency and, for lack of a better term, governance. Taken seriously by all and sundry, conservation alone can add upwards of 1,500MW. Efficiency or energy intensity is another area that can augment supply in a short time. Pakistan uses more energy to produce one dollar of its GDP than countries with a much higher GDP per capita. There are well-known ways of improving energy efficiency at the level of households, businesses and government. Finally, governance has become the Achilles’ heel of the energy sector. The so-called circular debt is its worst manifestation. Even if the present level of this huge debt is cleared up in one stroke, as Mian Nawaz Sharif has said he would, the problem can recur if the culture of not paying up on time and across-the-board subsidies continues. Receivables routinely exceed payables by wide margins because price does not cover cost, cost conceals theft and wastage and all players wait for the government to bail them out. Fuel allocation is distorted as no distinction is made between efficient and inefficient plants. From imported coal to gas, the priority for electricity to captive plants is a cobweb of corruption and vested interests, nurtured by a structure that is decentralised in name only.

As for the net capital outflow, I have been saying and will say it again that there is no need to rush to the IMF. Regulatory duty on inessential imports, recovery of the overdue $800 million from Etisalat and a transparent 3G auction will support fiscal, as well as current account balance, for 100 days. This is enough time to prepare a national reform programme and think carefully about whether to implement it with or without the IMF.

Published in The Express Tribune, May 24^th, 2013.

The high voter turnout compared to previous elections is being attributed to a number of factors. These include an independent Election Commission (EC), procedural improvements, cleaning up of the electoral list, addition of youthful voters especially in urban areas, awareness campaigns and exhortations by political leaders at their public meetings. Common sense would suggest a higher turnout in urban constituencies and relatively better off districts. Poor in wealth, poor in turnout is a common adage in mature democracies. But the turnout on May 11, 2013 observed a distribution contrary to the expectations. Karachi, according to the Social Policy and Development Centre (SPDC), is the least poor district of Pakistan. Yet, the voter turnout was above the national average of 60 per cent in only three constituencies of the National Assembly. The highest was 65.54 per cent in NA-242. Some voters may have been kept away by the terrorist threat. Ranked after Karachi, however, even in Rawalpindi only NA-53 witnessed a voter turnout above the mean of 60 per cent, in spite of the far lower threat level. Lahore, a district with the third lowest poverty ratio, was no different: only NA-128 experienced a voter turnout of 64 per cent.

It was in the poorest districts that some of the highest turnouts were in evidence. Bahawalnagar, with a poverty rank of 37, saw all of its constituencies cross the 60 per cent mark. In fact, one constituency of the district, NA-191, was ahead of all constituencies of the country with a turnout of 84.8 per cent. Chitral, with a poverty rank of 61, had a voter turnout of 63.7 per cent. In rural Sindh, the highest turnout of 68.4 per cent was in NA-228 of Umerkot, followed by 67.5 per cent in NA-233 of Dadu. NA-267, Kachhi-Jhal Magsi, attracted 61.3 per cent of the registered voters. Both constituencies of Layyah, which are ranked 60 on the poverty scale, attracted turnouts of 67.6 and 68.1 per cent. All five constituencies of Muzzafargarh, ranked 90 at the bottom vis-a-vis poverty, showed a voter turnout of above 61 per cent.

The daily struggle for making ends meet occupies the poor the most. This is what economists call an opportunity or alternative cost for political participation. Their experiences inform economists about the hollowness of the political sloganeering to reduce poverty and unemployment. How is it that the highest turnouts have occurred in the poorest constituencies? Poverty is strongly correlated with the poor state of education and health. Many of these constituencies lie far away from the “media land.” Awareness, therefore, cannot explain much in this regard. Mobilisation by political parties through mass work can bring the poor out. Other than some big jalsas by major parties, political work at the grassroots level has become a thing of the past. There was no Bhutto-style wave anyway, Imran Khan’s tsunami notwithstanding. Restrictions placed by the EC on serving food and transport should also have also reduced the turnout.

Many of these constituencies continue to suffer from the feudal stranglehold. In its worst form, the thana kachehry culture fertilises ghost turnouts. The EC has admitted that the turnout at some polling stations was more than 100 per cent. One will not be surprised if many such polling stations were located in the poverty-stricken, high-turnout constituencies. There is work cut out for the EC. After holding an election which, on the whole, was free of political and extra-political meddling, it has to find ways of delinking the electoral competition from the informal nexus between the political elite and the administration at the constituency level.

Published in The Express Tribune, May 17^th, 2013.

According to Gallup Pakistan, the economy, despite its all-pervasive effects, occupies the attention span of talk-show hosts only six per cent of the time. Regardless, the economy on the eve of elections is not in too bad a shape. Doomsday scenarios of caretakers rushing to the IMF in the face of depleting foreign exchange reserves and the dreaded one rupee one cent exchange rate have come to naught. It is time to get real. Even the ‘fiscal deficit is the mother of all evils’ clan is shifting gears. The economy’s growth remains at a fairly healthy level of 3.6 per cent. Higher than population growth, it implies a positive increase in income per capita. The two main drivers of real sector growth, major crops and large-scale manufacturing, have grown faster than the previous year — 3.2 per cent against 2.9 per cent and 2.8 against 1.2 per cent, respectively. The services sector, the driver of jobless growth during the Musharraf period, slowed down from 5.3 to 3.7 per cent.

Needless to say, the GDP growth has to be twice the rate achieved to make a difference to the unemployment rate, which, in the second quarter of the current year, has increased to 6.5 per cent from six per cent in the same quarter last year. It will be critical for the newly elected government to accelerate the rate of investment, which has declined in large-scale manufacturing by as much as 22.5 per cent in current market prices. Growth has mainly come from capacity utilisation. An indication of this is that while credit to the private sector has increased significantly, 86 per cent of it is for working capital. The change of the GDP base from 1999-2000 to 2005-06 reveals an anomalous shift in the structure of the economy. In the common development experience, structural change refers to an increasing share of manufacturing and declining share of agriculture. In our case, it is the reverse signaling deindustrialisation. Agriculture is the basis of our time-tested resilience. But the road to high growth and full employment can be taken neither through agriculture nor services. Manufacturing growth is the key.

As real growth maintained a semblance of respectability, especially in agriculture, inflation has also come down substantially. The consumer price index (CPI), the standard measure of inflation rate, stands at 7.8 per cent in the first 10 months of the current year, compared with 10.8 per cent in the corresponding period last year. In fact, the inflation rate of 5.8 per cent in the month of April is already approaching the lower range of the much sought after single-digit. While the Wholesale Price Index and the Sensitive Price Indicator (SPI) are also closely in line with the CPI, a rare happening, the SPI at 7.9 per cent is higher than last year’s tally of 6.7 per cent. In April, the SPI has begun to decline. The reason is that food inflation is coming down faster than the overall inflation. However, prices of wheat and wheat flour rose by more than 15 per cent. With wheat output short of the requirement by half a million tonnes, there may be further increases.

Core inflation has been above the headline inflation since the easing of the monetary policy. The holding action taken by the State Bank of Pakistan last April may have to be repeated to absorb the pressures arising from the excessive public as well as private spending during the elections campaign.

Published in The Express Tribune, May 10^th, 2013.

In the ongoing election campaign, misgovernance by the outgoing regimes at the federal and provincial levels has emerged as a major issue. In the manifestos and public pronouncements, however, there is little appreciation of the fact that weak governance is a reflection of the rapidly deteriorating quality of bureaucracy. The directions set out by the political leadership have to be implemented by the bureaucracy. Pakistan inherited a centralised system of bureaucracy from colonial rule. It acquitted itself well in dealing with the immediate problems arising from an ill-planned Partition, especially the massive influx of refugees. On the annual, it learned the art of wrenching power out of the hands of an inept political class and extracting rents out of the allocation of evacuee property and a plethora of economic controls. Two efforts to reform the system by Ayub Khan and Yahya Khan turned out to be witch-hunting exercises. The third one under Zulfikar Ali Bhutto aimed to bring back political control. It took away the constitutional security provided to civil servants and introduced the lateral entry system. While it opened the steel frame to fresh blood and experts in a predominantly generalist bureaucracy, it also marked the beginning of what, in popular reckoning, is political interference. Postings and transfers have become the main instruments of deploying political power. A rapid turnover of civil servants in key positions has become a bane of our politics. Before a secretary or the head of an organisation has had the time to settle down in his job and learn the tricks of the new trade, he is posted to another position or, worse, made an officer on special duty (OSD) — a glorified title for an officer made non-functional. In recent years, donors have jumped in with money and ideas on civil service reform. The money has been used up and added to the debt while the ideas have been declared unpractical.

Let us face it. The economic and social problems facing the country are too complex for a bureaucracy that has found it increasingly hard to carry out its original mandate — to preserve order and collect revenue. Without a well laid out plan for civil service reform, I have no doubt in my mind that the government installed after May 11 will quickly start hiding behind the familiar refrain that the bureaucracy is creating hurdles in its way. To give a fair chance to implement its manifesto, something like the American spoil system may be in order. A party winning the elections should be formally allowed to appoint people of its choice to top positions. Of course, the bunch leaves when the government falls or completes the tenure, rather than adding to the already bloated bureaucracy.

In this context, the profound implications of the Eighteenth Amendment to the Constitution have not been understood. With most subjects and the bulk of resources devolved to the provinces, the concept of centralised services has become meaningless. Indeed, judging by the manifestos, the local governments are likely to be revived. For effective delivery of services, each level of government should recruit its own bureaucracy according to its needs. It makes sense for the federal government to recruit officers for the foreign service, but recruitment for the police service and providing officers to the provinces require special pleading. Similarly, the provinces have no business recruiting and appointing teachers and doctors for the districts. Finally, at the concurrent level of governance, the Planning Commission needs to become the secretariat of the Council of Common Interest as well as the National Economic Council, with powers to recruit professional staff directly, but in proportion to provincial quotas.

Published in The Express Tribune, May 3^rd, 2013.

To woo the voters in the forthcoming elections, all parties seem to have spent a lot of time and money in the preparation of their manifestos. While this is a sign of political maturity, the thickness of these documents has not changed their well-known narratives. The speeches at public gatherings, the parties’ political telecasts and the advertisements in the print media leave no doubt about the reproduction of the stock-in-trade. Owing to the economic mess that we are in, the narratives do pay heed to it by offering quick timelines for solving problems that have been long in the making and might take even longer to resolve. Here go the narratives. No prizes for guessing which belongs where. Again, no caricaturing was intended. My apologies if there are any unintended consequences. The order of presentation is accidental, not a recommendation.

1) We are the party of economic revival. We have the experience to carry it out without a kashkol. We know motorways. We know mass transit. All big cities will have bus rapid transit systems. Bullet trains will be next. Load-shedding will end in two years. Roti will be sasti. Peeli taxis and green rickshaws will provide self-employment. Three million jobs will be created for others. Nobody will be denied kidney treatment. Danish schools will provide the disadvantaged an entry into the elite. The country will be among the top 10 developed countries. It will have the highest laptops per capita in the world.

2) We are the party of change. Change means zero tolerance for corruption. Only those unspoiled by the past can spearhead this change. The 16 million youth between the ages of 18 and 25 are the obvious change-makers. Besides controlling the party, they get one-fourth of the tickets. Their presence in parliament will ensure justice for all, education for all and health for all. Those not in parliament will get 10 million jobs. Load-shedding will end in two to three years, corruption in three months. Our trust is in Allah, not America. With governance in the hands of those fearing Allah, institutions will be reformed on an emergency basis.

3) We are a party of the shaheeds, who were martyred for trying to bring about a change. They introduced land reforms, which were stopped by the Shariat Court. They were working to secure roti, kapra aur makaan for the poor, but BB shaheed’s government was prematurely dismissed twice. In the past five years, the courts did not allow us to do much for the poor. We provided thousands of jobs in the public sector enterprises, but the process was often disrupted by vested interests. Load-shedding would have ended, but for the courts’ intervention in the rental power projects. Massive floods forced us to concentrate on relief and rehabilitation rather than development. Still, we managed to increase support prices for farmers. Despite the fiscal cliff, the Benazir Income Support Programme took good care of the poorest of the poor. We stand ready to sacrifice our lives for the sake of the poor in the coming five years.

Practitioners of development would immediately recognise that the first narrative is a set of visible projects. The second narrative raises all the slogans that international donors and the NGO community love. They point to a set of programmes waiting to be converted into feasible projects. The last narrative is a lament. Neither are there any projects, nor programmes. All three lack a plan. As usual, policy will be the job of the generalist bureaucrats, whose reform has brought the system to its wit’s end.

Published in The Express Tribune, April 26^th, 2013.

Imran Khan’s statement at the press conference last week to launch the Pakistan Tehreek-e-Insaf’s (PTI) election manifesto was remarkable for what it left unsaid. He talked about reducing the number of federal ministries to 17, although that number also exceeds the ministerial job specifications post the Eighteenth Amendment. Reading out the salient topics, a now reconciled follower announced a lot of emergencies — education, health, energy, you name it. Institutions take decades to establish, but the PTI already has an emergency plan for institutional reform. Imran was flanked by General Ziaul Haq’s minister for youth affairs and a scion of landed aristocracy. No wonder, there was the trademark pampering of the youth. No wonder, also, that he kept mum on the land question. If one goes through the document circulated to the media, however, there is an eminently sensible agenda for land reforms. Not a word was said about this by anyone present. With the PPP having forgotten what its founding fathers stood for, and the PML-N’s marriage of convenience with feudal electables, the field is wide open to appeal to rural votes with a serious message on land reforms. Instead, Imran seems obsessed with busting the urban trust of the Sharif clan.

The PTI manifesto promises to strictly enforce the existing land reform laws. In effect, there are no such laws. They were declared un-Islamic by the Shariat Court. To demonstrate its seriousness, the PTI should have become a party to the pending appeal in the Supreme Court for a review of the earlier judgment. Has the commitment been made to placate the land reform enthusiasts in the party, hoping that the time to fulfil this commitment will never come? This is a game that the old guard of politicians usually plays. It is hard to believe that a person like Imran can make a commitment he does not intend to fulfil. The agenda, in his case, is unhidden. One likes to hope that the PTI would do what is necessary to resume the implementation of the land reform laws. In view of the developing techniques, there is a strong economic case for reducing the ceiling on ownership even further. For the present, however, the old laws are good enough for the increasing mass of the landless. Poor and dishonest implementation had made nonsense of their true intent. Effective execution, together with the PTI’s commitment to outlaw and uncover benami ownership, will ensure what it promises — the distribution of resumed land to the landless only. There is also an unambiguous declaration to eliminate the distinction between agricultural and non-agricultural incomes for tax purposes.

Small holdings for tillers are good for higher agricultural productivity, lower inequality and reduced rural poverty. However, satisfying the land hunger of peasants comes up against the greed of mafias, land grabbers and speculators. Land is a gift of nature and requires that it is handled with care. Corporate corrupters cannot augment its supply. The manifesto proposes appropriate legislation to stop tenant eviction and break the stranglehold of the patwari and “revenuecracy”, so that land records are maintained transparently and accessed easily. It is hoped the proposed legal reform will also relate to the issues of fragmentation resulting from inheritance laws, eminent domain and land acquisition. Good governance of land is as important as equitable land distribution. The focus of the manifesto on strengthening local governance is extremely relevant here. This is borne out by the experience of Botswana.

The PTI needs to not fight shy of telling the tiller what it promises. There are votes to be won here. Besides, the youth bulge is larger in rural areas.

Published in The Express Tribune, April 19^th, 2013.

When in power, politicians keep grumbling that foreign affairs and national security for them are no-go areas of policy. Economy is, however, largely their domain. Out of power, they wish for caretakers to clean it up and take all the hard decisions. This undying timidity has been the main source of the structural deformities characterising our economy. By not choosing an economist as caretaker prime minister, the Election Commission of Pakistan spoiled the game. And by preventing an economist from becoming caretaker finance minister, the non-economist governor of the State Bank of Pakistan (SBP) ensured, unwittingly, that the caretakers would focus on elections rather than attempt an economic miracle in 60 days. To be sustained over a long period, economic reform must be thought up, legislated and implemented by elected representatives themselves. Were it a matter of technocratic efficiency, the work done by the caretaker regime of Moin Qureshi would not have been rolled back by successive regimes.

The issue at hand is not so much a home-grown package of reform, but when the deteriorating state of the economy will force recourse to the international lender of the last resort, the International Monetary Fund (IMF), which, in return, will demand a whole set of prior actions that the politicians failed to take. The script is a rehash of previous transitions: high external debt, rising debt servicing, depleting foreign exchange reserves and the spectre of a run on the rupee. Traditionally, the local lender of the last resort, the SBP, is the keenest member of the economic team for an IMF deal. It seems the present governor is departing from the script. With reserves of $7.1 billion at the SBP and another five billion dollars with commercial banks, he feels he can pull through. The amount covers two months’ imports and is enough to pay the IMF and other dues by the end of June. Imports are contracting as a result of low growth. Remittances keep on springing a surprise and the dip since December is to be overcome by a new initiative exempting transfer charges. The current account deficit between July 2012 and February 2013 was a manageable $700 million. Inflation was down to eight per cent during July 2012 and March 2013 and the dollar at Rs98.43 is still away from the dreaded parity of Rs100 for a dollar. In the second quarter of the current year, external debt and liabilities were 27.9 per cent of the gross domestic product (GDP), lower than 29 per cent of the GDP in the comparable quarter last year. Total public debt at 61.2 per cent of the GDP breached the legal limit of 60 per cent, but is far lower than the public debts of Greece, Italy, Spain and Cyprus. Pakistan is meeting her official obligations, though some sovereign guarantees have been invoked. The stock exchange and the currency market are not sending any warning signals. Credit to the private sector, especially fixed investment, is up.

The problem is on the side of revenue and expenditure, with a likely fiscal deficit of eight to nine per cent. A caretaker government can tighten expenditure, but the Finance Division is shifting the blame to the Federal Board of Revenue, where confusion is the order of the day. In any case, tax reform is better left to elected representatives. As for the IMF, it is unlikely to risk entering into an arrangement that the next government may not buy. Its next mission is mainly expected to discuss the results of its latest study on energy subsidies. By releasing Rs20 billion to subsidise the power sector this week, the caretaker prime minister has said thanks, but no thanks.

Published in The Express Tribune, April 12^th, 2013.

Mr Sethi, the caretaker chief minister of Punjab, was spot on when he said that his one and only job was to facilitate elections, not make policy or launch projects. A clear statement like this is particularly important when it comes to the economy. In the very next instant, he diluted the statement by making promises to the poor. His heart is in the right place, but that is not the point. A caretaker set-up has neither the time nor the mandate to start anything new. Indeed, if Mr Sethi, who has kept the portfolio of finance with him, has had a chance to look into his vault, there is no money left after the spending spree in the month of March.

This should be his main worry. If he wants to end up as an honest caretaker rather than Pushkin’s undertaker, then his number one economic priority should be to ensure a zero overdraft with the State Bank of Pakistan. Data has not yet been made public for the month of March, but a sizeable overdraft may not be an unsafe guess. In the province, this overdraft is the equivalent of fiscal deficit at the national level. Its size shows the quality of fiscal management of a provincial government. Maintaining fiscal responsibility at the provincial level has assumed greater significance after the generous Seventh NFC Award and the devolution under the Eighteenth Amendment. The change, however, has not sunk into the provincial financial culture. In 2010-11 — the first year reflecting the full effect of the change — an unprepared Punjab spent Rs48 billion less than the total revenue. In the following year, it overspent to the tune of Rs9 billion. In the current year, total expenditure has been budgeted in excess of total receipts to the extent of Rs3 billion. The civil accounts up to February show that the provision for the development budget has been increased from Rs250 billion to Rs 261 billion. But beware The Ides of March. The expenditure may overshoot the revenue by miles.

What is to be done? Nothing can be done on the revenue side in such a short period. For years, the provincial revenues have been negligible and the incentive for further mobilisation has been weakened by the increase in the provincial share of the divisible pool of federal taxes to 57.5 per cent. Although Punjab’s relative share in the total provincial share at 51.74 per cent is less than before, due to the reduced weightage given to population in the new formula, the absolute increase in its share has been more than 100 per cent. However, given the state of play at the federal level, Punjab is unlikely to receive the budgeted amount of Rs650 billion in the current year. All the action, therefore, is on the expenditure side. Even here, the current budget is tougher to cut than the development budget. A smaller cabinet, laying off the fat of hangers-on and an austere style may go some distance, but only some. There will, however, be a lot of fat in the development budget.

Therefore, the following must be adhered to. First, no new scheme should be initiated and the chief minister should avoid the temptation of making announcements of packages or grants of any sort. Second, any scheme not approved in the budgeted annual development programme need not be funded. Third, schemes having utilised 80 per cent of the allocation should be provided their budgeted funding. All token allocations should be scrapped. In the projects requiring public-private partnership, the private should be emphasised more than the public. Finally, and as a rule, revenue for April and May should be forecast and the expenditure pitched accordingly.

Published in The Express Tribune, April 5^th, 2013.