Planning, finance ministries at odds

Ahsan Iqbal writes letter to Ishaq Dar, complaining he is being ignored in Budget Strategy Paper preparation.

ISLAMABAD: As their respective ministries squabble over macroeconomic targets for the next fiscal year, Planning Minister Ahsan Iqbal, in a letter to Finance Minister Ishaq Dar, has complained that he is being ignored in the preparation of the Budget Strategy Paper, sources told The Express Tribune on Thursday.

Under the Rules of Business of 1973, economic planning is the domain of the Planning Commission (PC). But in the last few years, the finance ministry, whose job is managing the country’s coffers, has taken over economic planning. Last month, the finance ministry prepared budgetary and macroeconomic targets without consulting the commission.

When contacted, a senior planning ministry official confirmed Iqbal had written a letter to his fellow minister. However, he maintained that the purpose of the letter was to highlight the importance of working jointly to make better economic plans for the country.

Cause of disagreement

On April 27, the federal cabinet approved a 6.2% Gross Domestic Product (GDP) growth target for next fiscal year proposed by the finance ministry. It also approved a 20.3% investment-to-GDP target and 1.1% current account deficit target for the next fiscal year. However, PC never endorsed these targets.

Headed by the planning minister, the Annual Plan Coordination Committee (APCC) is meeting today (Friday) to approve 5.7% GDP growth target for next fiscal year. PC economists also believe that next year, investment cannot surpass 17.7%, much less 20.3%. Also, the current account deficit will be $4.7 billion against finance ministry’s rosy picture of $3.1 billion, said the sources.

PC has prepared the annual plan 2016-17 by factoring in subdued agriculture performance. It was for the first time in the last 15 years that the agriculture sector contracted in the outgoing fiscal year instead of posting growth.

“The repercussions of poor performance of agriculture sector in 2015-16, especially cotton crop failure, are expected to act as a drag on overall growth for next year,” according to the PC assessment. It also said that even achievement of 5.7% economic growth target hinges on consistent energy supplies, normal weather conditions, positive investor sentiments and political stability.

The major difference of opinion between PC and the finance ministry is growth in the agriculture sector. The commission says adequate production of cotton next year will mainly depend upon crop husbandry, weather conditions and commodity prices. The commission is of the view that given the subdued international prices, reduction in cotton sowing area and lack of interest in crops due to shrinking profits, the prospects of satisfactory cotton output remains precarious. This is bound to depress the overall growth of important crops, it added.

PC also said that the global outlook for commodity prices remains cautionary for the 2016-17 with little expectation of quick resurgence. The commission has proposed consistent efforts for increasing exports.

Renowned economist Dr Kaiser Bengali on Thursday warned that the country’s economic policies were going in the wrong direction. He said that the government’s focus was on jobless sectors while the country needs to focus on manufacturing.

“Heavy indirect taxation is killing manufacturing, which will mean unemployment will increase further,” said Bengali, adding the government was only concerned about present problems.

Published in The Express Tribune, May 27^th, 2016.