Perhaps the public has been hasty in dismissing the federal budget as too ambitious. Though at first look it comes across as an election year budget, a closer look indicates that a serious high-level policy shift aimed at finally addressing structural bottlenecks might just be in the offing.
The government will not face the electorate till just after the next year’s numbers are presented. And one would assume the finance managers wouldn’t deliberately compromise the campaign cycle by posting unrealistic targets when the election outcome will depend overwhelmingly on the state of the economy.
However, even if they are to come moderately close, they will have to take some very tough decisions that do not generally sit well with campaign managers so close to voting. Senior figures in the finance ministry and planning commission have made no secrets of the seriousness of privatisation and taxation reforms. If the budget’s high targets owe to their overcoming more regressive elements wary of tough decisions before the election, some measure of relief might just come to the people. And the signs will start coming very soon.
First and foremost must be immediate restructuring of Public Sector Enterprises (PSEs). If progressive elements have been able to convince the political leadership of the centrality of their turnaround, we can expect additional fiscal space and tax revenues that will trim government borrowing, lowering inflation and interest rates. But if they continue to hemorrhage billions, stuffed with political appointees, the assumption of progressive lobbying would will prove wrong.
Follow up on tax boasts will be another important indicator of government seriousness. Unable to overcome political paralysis on the RGST issue, and choosing not to incorporate direct taxes, they have hedged all bets on expanding the tax base. Bold indeed. The finance minister and FBR chairman claimed tightening the noose on 700,000 high-profile evaders, which is commendable. Surely Dr Sheikh and company realise that the economy is not like financial markets, and won’t react to sentiment alone. While steps to net evaders are appreciated, the exchequer will have little to thank for until monies start rolling.
It is no secret that such aggressive initiatives will ruffle several feathers across the ruling coalition. If the government finally displays political will strong enough to make public examples, the electorate will gladly forgive any lags in long overdue tax receipts. But if claims are not immediately followed by visible actions, hopes of serious petitioning around power centres will prove illusionary.
It is not mere misfortune that we have had double digit inflation for six years now.
In the high growth days of the previous administration, it spiraled out of control because the finance ministry refused to shave a couple of percentage points off GDP growth in favour of accommodative prices. Now, with growth chronically low, it persists because excessive government borrowing has diluted a very tight monetary policy.
It has not only elbowed out private sector investment but also wasted years of public austerity, debilitating middle and lower income groups that form the largest bulk of the electorate.
Without taking some of the above steps, the government will not be able to free resources enough to provide urgent relief, failing which the stagflationary cycle will continue to get worse. The coming year will not bring export sector relief either. Cotton has crashed and the commodity roller coaster is always circumstantial.
While it ponders whether or not to disrupt the status quo, the government would do well to start focusing on growth instead of inflation to counter the downturn. Monetary rigidity should be compensated by fiscal relief by initiating large scale public works programs like bridges, roads and dams. In addition to improving infrastructure, they will provide employment, stimulating consumer activity.
Either way, the government’s position will become clear very soon. Though required steps are elementary in nature, they need iron political will because resistance from elements addicted to eating off the system will be tremendous. But the government must realise its position is precarious. Postponing change will amount to letting the economy choke, meaning those in power might as well start packing now. Going ahead with the overhaul might just be the gambit the government is counting on to make electoral history.
The writer is Business Editor, Pakistan Today
