Despite the government constantly painting a rosy picture, there exist grave economic challenges.
To address them, there is an urgent requirement of a team of professionals that truly understands the seriousness of these challenges and formulates a strategy that is built after a thorough analysis of the situation. Remedial measures can then be suggested keeping in mind the capabilities of the state machinery.
Unfortunately, the approach that the Q Block – the seat of the Ministry of Finance in Pak Secretariat – has adopted so far is 180-degree opposite. Since the Pakistan Muslim League-Nawaz government came into power, economic wizards are following a strategy of blaming their predecessors and, at the same time, deceiving masses by depicting a rosy picture of the prevailing economic situation.
They are also caught up in a state of denial and give a knee-jerk reaction when their mistakes are exposed by the media or reports written by various domestic and international think tanks and institutions.
The political leadership and the bureaucrats are equally responsible for the situation and the result is that the trust-deficit between the Q Block and rest of the stakeholders is widening. The mandarins have so far not made any serious effort to bridge the gulf.
From the start of the previous fiscal year 2013-14, two economic scenarios were available to the observers — one showed by the government in its budgetary books and another one that the International Monetary Fund was showing in its reports on the review of Pakistan’s economy under the $6.7-billion three-year Extended Fund Facility (EFF).
The IMF was adopting a cautious approach in its projections and taking a tough fiscal stance while the government was projecting higher numbers, leaning towards an unrealistic picture and asking public to believe it.
The deception on part of the Q-Block was to such an extent that the Parliament approved a budget showing a deficit of 6.3% of Gross Domestic Product but the government agreed with the IMF on a budget deficit of 5.8% of the GDP. The IMF had taken into account the revenue estimate at Rs2.345 trillion – Rs130 billion less than the official estimate. One main consideration behind this low projection was lack of FBR’s capability and slow pace of economic growth.
The lender of last resort had also estimated public sector development spending at Rs425 billion – Rs115 billion less than official estimates. At the end of the year, revenue collection stood at Rs2.266 trillion while development spending was curtailed at Rs441 billion.
When the difference was pointed out to the economic managers, it was conveyed by the Q Block that these were just IMF projections and media did not need to take it seriously. Finance Minister Ishaq Dar had to chew his words when the IMF and the government agreed to further bring down the annual revenue target to Rs2.275 trillion. The official response was that it was the first revision as the IMF had already worked out the revenue collection at Rs2.345 trillion. The Q Block accepted the reality but after seven months of initial media reports.
Now, the finance minister tells the nation that the country over performed the budget deficit target and closed the previous fiscal year at 5.7% of the GDP. The question is why the nation was not taken into confidence in September last year when the IMF report was released after the Board meeting that approved the EFF?
Even this 5.7% of GDP budget deficit target has been achieved on the back of adjusting previous year’s revenues into last fiscal year and keeping some liabilities, mainly in the energy sector, outside the budgetary books.
The people are told that the economic growth in the last fiscal year remained at 4.1% – the highest in seven years. But the IMF was told that the growth was expected to remain at 3.3% –the lowest in four years. Why the dishonesty and discrepancy?
The government is also celebrating “victory” of building foreign currency reserves of over $14 billion, sufficient to finance about two and half months import bill. But the IMF does not cheer the achievement. Its latest report says that,
“Although recent grants from Saudi Arabia (totaling $1.5 billion) and the successful $2 billion Eurobond issue have eased foreign exchange market pressures and have begun to alleviate balance of payments crisis concerns, staff suggested that the SBP should not bet on one-offs inflows (e.g., grants and privatisation receipts) and should align monetary and exchange rate policy to further boost reserves”.
When the issue was put in front of an upbeat Dar during a press conference, he gave a response that was not expected from a person of his calibre. “I do not take the IMF report seriously and forget about it after reading it”. He advised that media that it should also not propagate the IMF findings.
“We are handling country’s economy ourselves and not taking dictation from IMF,” Dar had said.
The need to listen more attentively
But the question remains whether we know the constraints of the economy, capability of the civil service and the harsh reality that the economy cannot be turned around in a year. In the process of declaring an early victory, the Q Block is losing one thing –the critical appreciation for some of its good steps and the support for structural reforms.
Probably, the leadership including the finance minister should listen to some independent views more than the ones expressed by his immediate subordinates. People close to the finance minister are those who used to give such advice to the previous government. They even used to leak information to PML-N when the party was in opposition. The same bunch is now giving a knee-jerk reaction to reports that highlight flaws in economic policymaking and suggest remedial measures.
Published in The Express Tribune, August 11th, 2014.
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