Simply passing the buck
In another first, despite skepticism expressed by the opposition against announcing the sixth budget of its five-year tenure the PML-N government nonetheless went ahead and presented it. Most economists agree that with the remaining tenure of the government barely a little over four weeks presenting a financial plan for the whole fiscal year was highly inappropriate.
In unholy haste Miftah Ismail advisor on finance, revenue and economic affairs was given oath as finance minister by Prime Minister Shahid Khaqan Abbasi hours before presenting of the budget in the National Assembly. The leader of the opposition Syed Khurshid Shah rightly opposed the move. While the PTI stalwart Shah Mehmood Qureshi pointed out that the finance minister was neither a member of the National Assembly nor of the Senate.
Miftah insisted that the government was within its constitutional rights to present the budget. He however conceded that the next elected government would be within its right to amend it.
According to the freshly minted finance minister the government cannot run a day without a budget. Quite true. But the government could have simply presented an expenses budget for the interim of perhaps four months.
The next year’s budget is an expenses budget with no tangible plan to raise revenues
Interestingly the Punjab government despite having prepared the budget 2018-19 has decided not to present it. Provincial finance minister Dr. Aisha Ghaus Pasha was able to convince the chief minister about probity of presenting the provincial budget in the twilight days of the government. The rest of the provinces are likely to follow suit as well.
But why was the PML-N government insistent upon presenting the budget? Certainly there is a method to its madness.
The obvious explanation is that the government cynically calculated that announcing the next year’s budget would be good for electioneering. Giving tax breaks, increasing salaries and pensions of government services and not imposing new taxes will be good politics. But perhaps not sound economics.
A record allocation of Rs1.1 trillion (an 18 per cent increase in the defence budget) is good news for the armed forces.
The tax base already narrow, with only a meager 700,000 income tax payers, the next government will be badly stretched to improvise even to maintain the present dismal tax to GDP ratio.
Perhaps the government through the budget also wanted to give legal cover to the tax amnesty scheme announced earlier during the month by the prime minister. Under the proposed scheme people with undeclared income earned before June 30, 2017 will be able to declare it by simply paying five per cent penalty. While foreign exchange can be brought back in the country by paying a 2pc tax in dollars or declared but kept abroad at 5pc.
Another reason to present the budget at the eleventh hour could be to enable the government to get its profligate expenses not ear marked in the current budget approved through the supplementary budget.
The outgoing government takes great pride for achieving a historic 5.8 per cent GDP growth against a target of 6 per cent. But it seems like Miftah deliberately hid the small print from the legislators.
According to him the budget reflects the vision of the ousted Prime Minister Nawaz Sharif. But with the Public debt including external debt almost doubling during the past four years the government can hardly crow about a buoyant economy.
With foreign exchange reserves at a dangerously low level –hardly sufficient to cover two months import bill — the future elected government will be mostly relying on the much touted amnesty scheme to save itself from the IMF (International Monetary Fund) gauntlet.
Another alarming indictor is the Rs900 billion burgeoning circular debt. The international oil prices shooting up after five years of cheap oil will make matters worse for the next government.
The Economic Survey released a day before the budget is a story of missed targets during the financial year. Of course like the GDP growth rate despite missing the target by three percentage points, moderate inflation and high consumer demand are positive developments.
But there is not much else to cheer about! The economy seems to be impaired by weak fundamentals that are bound to affect growth during the next financial year.
The current account deficit increasing almost 50 per cent reaching USD12.029 Billion is not a healthy sign. By some estimates it is expected to reach USD16 Billion by the end of the financial year. The import bill soared to a whopping USD40.6 Billion which is a 16.6% increase over the previous year and is estimated to go up to USD60 billion by then of this financial year.
The PML-N government however now in elections mode wants to simply sweep all the negatives under the carpet.
The obvious explanation is that the government cynically calculated that announcing the next year’s budget would be good for electioneering
Talking about Sharif’s vision it began and ended with his finance minister and close consort Ishaq Dar. The former finance minister was fixated upon refusing to devalue the Rupee against the US dollar. And so was his boss.
Nobody is shedding any tears on Dar’s exit including his former colleagues, which is understandable as he was never a team player. It was either his way or the highway for him.
The budget presented by the Abbasi government is a clear break from ‘Darnomics’ of yesteryears. After the undeclared devaluation of the Rupee in the past few weeks Miftah claimed in his budget speech that the exports have started showing an upward trend.
But it is too late to repair the inexorable damage to the economy owing to the Sharif-Dar duo’s voodoo economics. The Pakistani Rupee being most expensive in the region our exports got a real beating.
Domestic and foreign investment in the manufacturing sector at an all-time low Pakistan has become more and more an import-oriented economy. The CPEC (China Pakistan economic corridor) projects have also impacted upon the soaring import bill.
The next year’s budget is an expenses budget with no tangible plan to raise revenues. It will be interesting to watch that if the present government is reelected in the forthcoming general elections how it will walk the talk. Or perhaps it will be hosted by its own petard?