It would not be an understatement to call the economy a weakened one when the Pakistan Muslim League-N government came into power. It, however, managed to arrest the decline and instill confidence among unnerving investors and international financial institutions.
Its short-term stabilisation measures largely focused on improving stakeholders’ perception but the government fell short of taking much needed drastic reforms that its economic czar had announced in his maiden budget speech delivered on June 12, 2013.
Exchange rate stabilisation, auction of next-generation spectrums and floatation of Euro bonds are among the notable achievements of the government. But none of these measures can be considered as reforms as all of them were administrative decisions like the power tariff increase, which is also wrongly portrayed as an energy-sector reform.
Promises that Ishaq Dar made with the nation were rooted in the party manifesto, but some lacked substance like any other manuscript that is offered to lure voters.
Review of the budget speech
A critical review of the finance minister’s speech gives an idea where the government stands and what it could have done to achieve the six goals that Dar set for his government at the floor of the National Assembly.
“My enthusiasm is seriously dampened as I discover that the new government is inheriting a broken economy,” he had said while reading out what seemed an indictment of the Pakistan Peoples Party government. Dar had then highlighted the failures of the previous government — ranging from economic growth to prices, revenues to expenditure, public debt to circular debt, monetary expansion to interest rates, exchange rate to forex reserves and sustainability of balance of payments.
He blamed his predecessors for leaving the economy on autopilot.
Dar had said his government would “build an economy that is not dependent on others except through trade and investment, based on competitive advantage and market considerations.”
Twelve months down the line, it appears that the government worked to the contrary. The economy’s reliance on foreign powers has increased significantly.
The government proudly received $1.5 billion as a ‘gift’ from Saudi Arabia. The target to increase investment-to-GDP ratio to 15.1% has been missed. Economic growth target of 4.4% has been missed.
On the international trade front, the government could not normalise trade ties with India despite agreeing on the March 31 deadline. On the back of spadework done by the PPP government, the country availed the duty free access to the European Union. But the PML-N government could not win trade concessions from the US.
Goal II and III
“The private sector has to be the lynchpin of economic activities, shouldering the largest burden of economic functions. The only areas where government’s presence in economic affairs can be justified are where investments are too large for private sector to undertake”.
The government has made attempts to reduce its footprint but a lot more is desirable. It has set a privatisation agenda, which it is trying to achieve by moving forward very carefully. However, enabling reforms that would bring the private sector to the driver’s seat have not yet been initiated. No efforts are being made to decrease red-tape issues. The private sector is reluctant and most deals are done on a government-to-government basis.
“All segments of the population must share the burden of resource mobilisation for running the government. The culture of exemptions and concessions must end to build a self-reliant economy”.
This is an area where the government has failed most miserably. It cannot count even a single effort that it made to make the tax system more equitable. Instead, the hands of the industrialists and traders have been strengthened further during the last one year. It has accepted 26 demands of the business community after the budget. No tax exemption was withdrawn in the last one year.
“The government must limit itself within the broader limits imposed by the available resources, primarily determined by revenues collected through different taxes”.
On the face of it, the government is going to achieve this year’s budget deficit target of 5.8% of the budget. But this is coming on the back of a drastic cut in development expenditures, as the current spending remains above limits. It will surely miss the tax collection target of Rs2.475 trillion that shows its inability to broaden the tax net and improve the performance of the tax machinery. It has also missed the target of mobilising savings.
“We have to protect our weak and poor segments of population. People of this country are our real strength”.
The government kept intact the Benazir Income Support Programme and also increased its monthly stipend by 20%. It also protected the low-income group from the impacts of increases in electricity prices and is bearing the subsidy cost.
However, no serious efforts were made to create job opportunities. It placed a ban on new hiring. Dar had announced the three-Marla housing scheme for the homeless and promised to give away plots free of cost. There is no progress on the issue yet.
Published in The Express Tribune, May 26th, 2014.