18th Amendment: handle with care
The federal government needs to look at its own backyard before looking elsewhere
pervez.tahir@tribune.com.pk
The 18th Amendment and the 7th National Finance Commission (NFC) were the best things that happened for the preservation of the federation and the strengthening of what is left of Pakistan since 1971. There is every reason to believe that the absence of an arrangement like this caused 1971. However, the miltablishment, the IMF and Miftah Ismail are on the same page in holding this hard-won political consensus responsible for a whole lot of problems. Miftah is more vocal, putting it among the key structural problems the economy is facing. He forgets that his party signed up in exchange for the third-term premiership and leaving Articles 62 and 63 as these are today. The problem statement is not left unclear. In his own words quoted in the press, he asserts that the federal share of 42.5% in the NFC is “only sufficient for debt servicing and the government was (is) meeting the needs of defence, development, pensions and running its affairs through borrowing.”
While the Constitution stands in the way of any rollback, Miftah’s statement fails the test of even a cursory scrutiny. Take the case of the federal budget 2017-18. Net revenue receipts of the federal government were budgeted at Rs2,926 billion. Debt servicing, interest on domestic and external debt as well as repayment of external debt was 56.4% of the revenue. Contrary to Miftah’s claim, all of the revenue was not consumed by debt servicing. Indeed, what Miftah says has never been the case even during the worst days of the economy. This should reassure the IMF also, unusually worried as it recently has been about the repayment of debt. This country has no history of default. Miftah said an even more irresponsible thing, that defence and pensions are also paid out of borrowed money. Forty per cent of the revenue goes to defence and pensions. The miltablishment should also be rest assured that national security is paid for by the money contributed by the people of this country.
The federal government needs to look at its own backyard before looking elsewhere. The balance of 3.6% of the revenue is sufficient for the running of its other affairs if it does not overextend its size beyond the stipulation under the 18th Amendment. There are 32 ministries and 103 divisions and entities. It only needs foreign affairs, including overseas Pakistanis’ affairs, commerce, communications including ports and shipping and railways, finance including economic affairs, interior including Kashmir affairs, Gilgit-Baltistan and states and frontier regions, law and justice, energy, water. The Planning Commission should act as the secretariat of the Council of Common Interests and the National Economic Council. The sum of Rs377 billion budgeted for the running of the civilian government is more than enough for these functions.
Any spending beyond this limit would require further borrowing. With the present debt profile, this is not advisable. The government may find the courage to reduce military expenditure, but it must demonstrate before that that all other spending is prudent, which is hardly likely, as expenditure profile is no better than the debt profile. Next, the government can get serious about the long-awaited tax reform. Here there is the fear that the federal government will get only 42.5% of the additional revenue due to the NFC formula. There is, therefore, no incentive to improve the tax structure. As for development, the federal programme has to focus on interprovincial roads, ports, railways, water and power. These are projects generating future returns and a fit case for borrowing. In the social sector, the federal government’s only responsibility is the Islamabad Capital Territory and the regulatory bodies.
Re-opening settled issues has never served the country well.
Published in The Express Tribune, March 23rd, 2018.
While the Constitution stands in the way of any rollback, Miftah’s statement fails the test of even a cursory scrutiny. Take the case of the federal budget 2017-18. Net revenue receipts of the federal government were budgeted at Rs2,926 billion. Debt servicing, interest on domestic and external debt as well as repayment of external debt was 56.4% of the revenue. Contrary to Miftah’s claim, all of the revenue was not consumed by debt servicing. Indeed, what Miftah says has never been the case even during the worst days of the economy. This should reassure the IMF also, unusually worried as it recently has been about the repayment of debt. This country has no history of default. Miftah said an even more irresponsible thing, that defence and pensions are also paid out of borrowed money. Forty per cent of the revenue goes to defence and pensions. The miltablishment should also be rest assured that national security is paid for by the money contributed by the people of this country.
The federal government needs to look at its own backyard before looking elsewhere. The balance of 3.6% of the revenue is sufficient for the running of its other affairs if it does not overextend its size beyond the stipulation under the 18th Amendment. There are 32 ministries and 103 divisions and entities. It only needs foreign affairs, including overseas Pakistanis’ affairs, commerce, communications including ports and shipping and railways, finance including economic affairs, interior including Kashmir affairs, Gilgit-Baltistan and states and frontier regions, law and justice, energy, water. The Planning Commission should act as the secretariat of the Council of Common Interests and the National Economic Council. The sum of Rs377 billion budgeted for the running of the civilian government is more than enough for these functions.
Any spending beyond this limit would require further borrowing. With the present debt profile, this is not advisable. The government may find the courage to reduce military expenditure, but it must demonstrate before that that all other spending is prudent, which is hardly likely, as expenditure profile is no better than the debt profile. Next, the government can get serious about the long-awaited tax reform. Here there is the fear that the federal government will get only 42.5% of the additional revenue due to the NFC formula. There is, therefore, no incentive to improve the tax structure. As for development, the federal programme has to focus on interprovincial roads, ports, railways, water and power. These are projects generating future returns and a fit case for borrowing. In the social sector, the federal government’s only responsibility is the Islamabad Capital Territory and the regulatory bodies.
Re-opening settled issues has never served the country well.
Published in The Express Tribune, March 23rd, 2018.