The 45-day agenda

Published: January 20, 2011
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The writer is a former chief economist of the Planning Commission and is based in Lahore
pervez.tahir@tribune.com.pk

The writer is a former chief economist of the Planning Commission and is based in Lahore [email protected]

In this newspaper on June 25, 2010 I had written: “The economy of Pakistan has suffered enormously due to a lack of political consensus on critical economic issues… Economy, the bane of continuing malaise, must not be allowed to be the bone of contention between political competitors.” An initiative that should have been taken by the government has come from the PML-N as a ten-point agenda and been accepted by the government. Teams constituted for the purpose by both parties have begun deliberation. The process was not helped by the PML-N Quaid’s statement in Badin that his party would implement the ten-point agenda after coming into power. It created the impression that he did not expect the government to deliver. The finance minister’s indiscretion about the artificiality of the 45-day time frame was best avoided.

Of the ten points, four relate to the election commission, the accountability commission, the size of the cabinet and the implementation of the Supreme Court decisions. The remaining six fall in the economic and financial categories. One of these, the return of defaulted loans, is also a matter of creating an effective mechanism. Another point, formulation of an energy plan, has long-term implications. Half of the points have a bearing on the current state of the economy. These include: the withdrawal of the petroleum price rise, action on loss-making public enterprises, relief on items of common use and a 30 per cent reduction in current expenditure.

The withdrawal of the petroleum price rise has already taken place. We are thus left with three points of substantive economic nature, which are interrelated as well. The most important is the reduction in current expenditure. It is not clear whether it includes provincial current expenditure or not. Assuming it is federal only, the measure still has far reaching implications. A 30 per cent reduction, excluding transfer payments, will save Rs531 billion from the budget estimate of 2010-11. The end of losses in public enterprises and subsidies should add another Rs227 billion. In one go, the fiscal deficit budgeted at Rs 685 billion is wiped out and there is a surplus of Rs73 billion. However, when the axe is applied, one will find that over 70 per cent of the current expenditure is consumed by debt servicing, defence and pensions. It seems the PML-N did not have any economic advice available to know that its 30 per cent proposal would apply only to 30 per cent of the current budget. And we are not yet talking about the rising expenditure on internal security.

Mian Nawaz Sharif recently told a TV anchor that he had three priorities: reducing unemployment, extremism and lawlessness. Now, a general slashing of expenditure is likely to reduce employment. Reducing expenditure on defence and internal security may undermine efforts to control extremism and lawlessness. Similarly, cutting subsidies to state enterprises or privatisation will not only lead to lay-offs, but also hike prices. The federal government can only import or subsidise; all other actions to restrain prices lie with the provinces. General inflation, however, will come down if expenditure cuts reduce borrowing from the State Bank.

Expenditure reduction is important, but it cannot go far enough without effective taxation of incomes, consumption and property. Mr Ishaq Dar’s emphasis on expenditures, rather than taxes, stems from his misreading of the tax-to-GDP ratio when he was finance minister. With the change of the GDP base in 1999-2000, the ratios before and after are not comparable. This need not detract from his efforts to build an economic consensus. A comprehensive economic reform law may be necessary to sustain the consensus for at least a decade.

Published in The Express Tribune, January 21st, 2011.

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Reader Comments (3)

  • Syed Nadir El-Edroos
    Jan 21, 2011 - 5:03AM

    Taxation is never considered as a solution, rather a headache. All our governments, whether military or civil are populist. They are just playing for the galleries. On the other hand they have very little incentive to impose taxes and withdraw subsidies, for if they do then they would truly have to be representative and accountable. As the country runs on foreign loans and handouts, those who make decisions, bow to the whims of foreign actors, while soothing domestic tempers by positioning themselves against “anti-common man policies”.

    Better yet, the PML-N is now influencing the nations economic policy, holding meetings with cabinet members. They have the best of both worlds, if the policies succeed they can claim that due to their insistence the economy has become better. If things get worse, they can claim that the government didn’t listen to them. Either way, they are unaccountable. Recommend

  • Meekal Ahmed
    Jan 21, 2011 - 2:55PM

    So what you are saying PT is that we can’t cut spending?

    Of course any 30% cut must apply to the free-wheeling provinces as well. Do they live on another planet?

    Are we planning to restructure the public enterprises without cutting their work-force? Which country has pulled that off? Freeze pay and perks for top management and cut their work-force across-the-board by at least 40%. Give them a golden-handshake. We did that with the banks. Remember? They are now all private.

    This government giving jobs for the boys has to stop.

    And it was not a “withdrawal of the petroleum price rise” as you put it. It was the restoration of a subsidy to Pakistan’s rich — the scourge of the economy. Recommend

  • Dr Pervez Tahir
    Jan 21, 2011 - 7:31PM

    Meekal

    All I was trying to say was that you can’t have it both ways – promise rozgar and lower prices and privatize/restructure at the same time; cut expenditure without touching sacred cows; manage fiscal deficit without effective taxation. And the main political forces must sign on it.
    PTRecommend

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