Budget, circular debt and dharna

The budget 2015-16 is remarkable because it has something for everyone, yet no one seems happy. The vibes from the intended beneficiaries — the poor, the worker, the farmer, the middle class, the rich, the textile industry, the construction industry, K-P, Balochistan and Karachi — are not very encouraging. As the gap between the budget, revised budget and final accounts has widened over the years, the credibility of budgetary pronouncements has gone down in direct proportion. This is truer for the PML-N governments, known for building monuments to development rather than reform or change structures. Money for them grows on trees. The priority for roads rather than energy in the development budget, the invisibility of counterterrorism in the current budget and the lip service to taxing the rich and the untaxed, bares their approach: in the long run we are all dead; we live only until the next elections.

In the budget speech, the finance minister, whose economic hagiography knows no bounds, claimed that the loan from the IMF was taken to avoid default. It was, however, a simple agreement of mutual backscratching. The government got a breathing space and the IMF got its money back. This is the first civilian government of Pakistan that is likely to complete an IMF programme without any tangible economic reform.

At his post-budget press conference, the finance minister made the fantastic claim that the circular debt had nothing to do with the budget. Well, it had everything to do with the budget when he first spoke from the pulpit. In the budget speech of 2013-14, he lamented that, “after paying about Rs1,481 billion in tariff-differential subsidies, it is known to all that a gigantic circular debt of Rs503 billion is crippling the power sector and fiscal system of the country.” He was “pleased to announce that Prime Minister Mian Muhammad Nawaz Sharif has taken an historic decision to settle the entire circular debt in 60 days, so that every available and economically viable source of power could be brought on line.” In the document called Budget in Brief, an amount of Rs494.808 billion was shown for the settlement of the circular debt in ‘Table 31’ on current investments. A larger amount of Rs326 billion was cleared in June so that it could be shown in the revised estimates of the final budget of the previous government. This was in addition to the tariff-differential subsidy. This is how, in the words of Mr Ishaq Dar, “an alarmingly large deficit of 8.8 per cent” occurred in 2012-13 in the revised estimates, enabling him to fix the deficit for 2013-14 at 6.3 per cent. It was financed by borrowing from the State Bank.

This time round, Mr Dar listed Imran Khan’s dharna in August-December among the adverse influences on his performance. The delay in the divestment of the OGDC shares and the signing of $42 billion agreements is cited. Real indicators tell a different story. Inflation rate was 7.9 per cent before the dharna in July and seven per cent in August. It kept falling during the dharna and was 4.3 per cent in December. Exports in July were minus 7.9 per cent, but improved in August to minus 3.6 per cent. September was bad, but growth resumed and was 9.5 per cent in November. The year as a whole closed on negative growth. Growth of large-scale manufacturing in July was minus 0.45 per cent, but turned positive during the dharna months, to  4.4, 3.3, 2.2, 5.4 and 0.69.

Published in The Express Tribune, June 13^th,  2015.

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