Seeking an economic consensus

Finance Minister Hafeez Sheikh’s speech to wind up the debate in the National Assembly is remarkable for what it says about the future, but not for the budget being debated. The speech reflected the confidence that his budget would have a smooth sailing. He accepted the fiscally insignificant recommendations of the senate and was noncommittal towards the suggestions made by the MNAs. Instead, the good Dr lectured them on the essentials of sound economic management, even chiding ministers for keeping cars beyond entitlement. No re-imposition of wealth tax, abolished at the behest of the most propertied institution of the country by the Musharaff-Aziz government, nor a tax on agricultural income, being the jurisdiction of the provinces.

There was also an unequivocal recognition of provincial jurisdiction over the sales tax on services. Their new found autonomy has already led the provinces to disturb the assumptions of the overall fiscal deficit. Inflation may not thus be falling any time soon, unless the freeze on nonsalary, nonmilitary expenditure at the federal level is turned into drastic, across the board cuts in real terms. The implications of the seventh NFC Award and the 18th amendment are only beginning to unfold for fiscal policy. There is as yet no assessment of the implications for monetary policy and inflation of power granted to the provinces under the 18th amendment to raise their own debt. Shrewdly, all commitments that were made, were for the future. On offer was a joint parliamentary committee on the restructuring of the Federal Board of Revenue, another on the dealing with Rs250 billion bloodletting caused by the state enterprises. Most important, and I have been advocating it for sometime, he proposed a joint parliamentary stance on economic issues. The economy of Pakistan has suffered enormously due to a lack of political consensus on critical economic issues. The Charter of Democracy, the seventh NFC Award and the 18th amendment have demonstrated the existence of an underutilised potential of consensus politics. Economy, the bane of continuing malaise, must not be allowed to be the bone of contention between political competitors. Political change need not bring in its wake policy of inconsistency, project/programme rollbacks and strategic reversals.

A consensus on economic issues will ensure what the finance minister desires the budget to do: “protect the federation, strengthen the provinces and take the money to the people of the country and away from the bureaucracy.” While the state must have a social conscience, its expression need not be through “making work “but in taxing the rich and spending on the poor.”

The same bureaucracy has also stood in the way of giving autonomy to the Federal Bureau of Statistics (FBS). Political interference especially under Shaukat Aziz, underinvestment, and a demoralised staff have all made it a sick organisation. It needs to be liberated from those with a direct interest in disfiguring statistics and massaging the data. In the past, his ministry of finance has had a vested interest in the lack of transparency and integrity of data. A draft law in this regard has been in the works, used only to promise change in the future. The announcement by Dr Sheikh to make the FBS “totally autonomous” within a few months is more than welcome. He should begin in right earnest and appoint a statistician or economist of repute and impeccable integrity to steer the process.

Published in The Express Tribune, June 25^th, 2010.