Hafeez Sheikh’s budget

As far as intentions are concerned, the budget presented on June 5 to a parliament trying to establish its supremacy is a trademark Hafeez Sheikh budget. Since it was not exactly prepared by him, having just arrived on the scene, he was dismissive of its sanctity. He seemed to be suggesting that if need be there could be a budget every day.

The finance bureaucracy had hoped, as usual, that they would manage the IMF conditionality on VAT, but a rights-conscious province empowered by the 18th amendment and the 7th NFC threw a spanner in the works. Unruffled, Sheikh started his speech by extolling the virtues of consensus politics and extending it to economic management. But he did not forget his IFI training to remind the parliamentarians that one cannot be at the head of the queue of borrowers and not meet the conditionality at the same time.  For a quarter, he would squeeze the GST some more to get additional revenue and in the meantime work on a grand consensus on VAT.  “We are a sovereign nation and take our decisions ourselves” echoed the earlier government statement that we will decide when to start an operation in North Waziristan. Lavish praise was reserved for the second major consumer of the current budget, which otherwise stands frozen from July 1, 2010.

As finance minister of Sindh he cleared the overdraft with the State Bank and paid off bills of some 20 billion rupees. For once, the province became an example of financial prudence. Subsidies were cut and revenues raised. As federal finance minister, he promised the same. Pepco cannot get away with a subsidy exceeding the entire expenditure on civil administration. Ditto for PIA, Pakistan Steel, etc.

When Finance Minister Shaukat Aziz messed up poverty figures, Prime Minister Jamali set up a committee under Sheikh to prepare a poverty reduction strategy. When Aziz became prime minister the report was shelved. A point in the report was that the rich should not get subsidies meant for the poor.  Hence praise for the Benazir Income Support Programme, which targets the poor. But the allocation for the programme is smaller than the budgeted allocation in the outgoing year. It is higher than the amount utilised in 2009-10. A Hafeez Sheikh budget will typically allocate resources on the basis of revised allocations or actual utilisation rather than the previous year’s budget.

Implementation of schemes and projects in the development budget suffers because of a gap between allocations and release of funds. It results from the Planning Commission’s efforts to increase development budget and the Finance Division’s constraint to release funds in accordance with resource generation.  A lot of power play and arbitrariness follows, with releases determining priorities. Sheikh’s announcement that once a budget is allocated releases will be automatic is nothing short of revolutionary. He will of course know that the control of releases is effectively exercised by the chief executive.

As the author of a book on privatisation in Argentina, He is a privatiser first and last. He had his problems with Shaukat Aziz as minister of privatisation and investment.  In real terms, the total size of the budget is the same as last year. That is only the first step to reduce the size of the government. Next is the slashing of subsidies, the effort already quite visible in the budget. In time, an activist privatisation programme will follow.

For the moment, most of these are intentions. Sheikh’s predecessors were not short of ideas either.  The act begins when an announced fiscal deficit comes up against the no-go areas of taxation and spending. Let us hope that economists from the World Bank have the will and Sheikh from the land of the Sufis has the heart to bring about the intended consensus on economic management

Published in the Express Tribune, June 8^th, 2010.