Despite no need, finance ministry plans to set up macroeconomic unit

Already half a dozen offices are working; aim is to make better projections

ISLAMABAD: Despite having half a dozen dedicated offices working on the macroeconomic framework, the Ministry of Finance is planning to set up a macroeconomic unit, which may raise questions over its mandate, clearly defined in the Rules of Business 1973.

The finance minister’s office has initiated work to establish the unit for macroeconomic planning, said sources in the Ministry of Finance. They said the ministry did not have adequate capacity to make a realistic macroeconomic model for the country.

A small macroeconomic unit will be set up under the economic advisory wing with an aim to have better projection of the real economy and external sector, according to the Ministry of Finance.

For fiscal year 2017-18, the finance ministry had projected a current account deficit of $9 billion whereas the actual deficit stood at $18 billion.

However, former adviser to the finance ministry Dr Ashfaque Hasan Khan had forecast that the current account deficit would widen to $18 billion. He argued that the ministry deliberately understated the deficit to paint a rosy picture of the economy.

Under the 1973 rules, the Ministry of Planning and Development is responsible for making the economic plan. However, fiscal considerations have been dictating the macroeconomic framework and resultantly the numbers are not in sync with each other.

Over a period, particularly during former finance minister Ishaq Dar’s tenure, the Ministry of Finance also took over the job of formulating the macroeconomic framework.

“Formulation, within the framework of the national plan, of an annual plan and an annual development programme” is the responsibility of the Ministry of Planning, states the Rules of Business 1973.

Continuous evaluation of the economic situation and economic policy coordination is also the responsibility of the planning ministry, according to the rules.

The primary job of the finance ministry is to manage public finances and the rules do not give such powers to the ministry. However, it can only “advise on economic and financial policies and the promotion of economic research”, according to the rules.

The Ministry of Finance did not respond to the question about the need for setting up the macroeconomic unit, particularly when there were half a dozen offices already working, including a donor-funded project.

But people who were working on the proposal argued that there was a need to have a dedicated unit for public policy formulation. The unit would provide a sustainable source of information, they said.

At present, at least six units and offices are working on the macroeconomic framework in addition to the State Bank of Pakistan that runs a desk on macroeconomic modeling.

These include economic advisory wing of the finance ministry, Implementation and Economic Reforms Unit of the ministry and Debt Policy Coordination Office that directly reports to the finance minister.

There is also a medium-term budgetary framework (MTBF) unit that is funded by the European Union and has access to data. Its staff is on the payroll of donors that raises question over secrecy of the fiscal and economic data, sources said.

There are also different wings in the Ministry of Planning that are primarily responsible for formulating annual economic plans and five-year economic plans.

The MTBF unit had been set up 15 years ago as part of the public financial management reform with support of the UK Department for International Development (DFID) from 2003 to 2012. For the last five years, the MTBF is being funded by the European Union.

The MTBF staff sits in the Q Block despite not being on the payroll of the federal government, said sources in the ministry. There were incidences when crucial data was leaked to the EU.

The Ministry of Finance did not respond to a question about security of the data.

For the last many years, the Ministry of Finance has failed to make realistic projections about the budget deficit, in spite of the MTBF unit. Against the target of 4.1% of gross domestic product, the budget deficit would be around 6.9%. 

Published in The Express Tribune, July 22^nd, 2018.

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