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A charter of country’s economy

A budget encompasses an administration’s economic strategy for the forthcoming year and comprises of expenditure priorities as well as revenue generating measures that reflect its politico-economic agenda. To agree on a charter of the economy would therefore necessitate divorcing economics from politics which is impracticable especially in a democracy where different political parties with different politico-economic ideologies vie with each other for power.

Calls for a charter of the economy, a charter that one would assume requires an agreement at least between all three national parties – Pakistan Muslim League-Nawaz (PML-N), Pakistan People’s Party (PPP), and Pakistan Tehrik-i-Insaaf (PTI) – is unlikely to bear fruit as all three have markedly different expenditure priorities, propose different revenue generating measures and have their preferred ways of balancing the budget. Be that as it may, PTI has never formed a government at the centre and as such it is unclear whether it would forge its own path by looking at out of the box solutions, which the current state of the economy requires on an emergent basis, or else follow the usual prescriptions when formulating a budget which in our case are as follows: (i) an unwillingness (referred to as inability) to stem the persistent rise in current expenditure, (ii) failure to stem the annual leakage from the Federal Board of Revenue and continued heavy reliance on indirect taxes (whose incidence on the poor is greater than on the rich) to raise revenue to fund the rise in expenditure, and (iii) balancing the budget through curtailment of the budgeted development expenditure as well as increasing reliance on foreign and/or domestic borrowing.

The dosage of these prescriptions has varied considerably between the two political parties – PML-N and PPP – when in government in the Centre. One major outstanding PPP achievement was forging a consensus on the seventh National Finance Commission (NFC) award that enhanced the financial share of provinces from the divisible pool to 57.5 percent (from 46.5 percent) and convincing the Shahbaz Sharif-led Punjab government to agree to multiple indicators for determining provincial shares from the divisible pool instead of the previous sole criteria of population. Ironically once the PML-N came to power at the centre it began to undermine the NFC award by arguing that the money left with the federal government was insufficient to meet expenses. Ishaq Dar, known to have been engaged in the process that led to the consensus on the seventh NFC award during the PPP’s tenure, constantly belittled the accord after he was appointed as the federal finance minister, a stance that accounts for the next NFC award remaining over due by three years.

Few academics/economists would undermine the inherent efficacy of a policy of decentralization and the establishment of fiscal federalism “to promote equality, accountability, cost effectiveness, and opportunities for empowering and serving the poorest people in four provinces”; and yet this is precisely what the Dar-led Finance Ministry argued no doubt because Dar was neither an academic nor an economist.

Dar did not of course dwell on the fact that his flawed policies led to: (i) a rise in current expenditure from 2.6 trillion rupees in 2011-12 to 3.76 trillion rupees by 2017-18, with interest payments rising from 843.8 billion rupees in 2011-12 to 1.3 trillion rupees by 2017-18; (ii) budgeted federal development expenditure rose from 478 billion rupees to one trillion rupees with the largest allocation for roads followed by energy whereas the Zardari-led PPP was focused on allocating funds for development expenditure outside the PSDP and budgeted 154 billion rupees in 2012-13 (including the Benazir Income Support Programme) while Dar in 2017-18 budgeted the lower amount of 152 billion rupees under this head; and (iii) Dar attempted to compel the provinces to partly pay for this massive raise in outlay by raising the budgeted provincial surplus from 80 billion rupees in 2012-13 to 347.3 billion rupees in the current year.

The PPP-led coalition government and the PML-N government also differed in terms of generating revenue with the latter beginning to rely heavily on withholding taxes and crediting them under income tax while levying them in the sales tax mode which effectively implied that filers first pay a tax on their income at source and then again on items/services on which the withholding tax is levied; while the non-filers, even though they pay double the rate applicable on filers, are not tempted to begin filing returns. The PPP-led coalition government made few changes to the existing tax system and structure and did lament the leakages from the system though no effort was made to deal with these very same leakages.

Another major difference between the two parties has been the heavy reliance on borrowing by the PML-N as opposed to the PPP-led coalition government. Gross domestic debt in 2012 was 7.6 trillion rupees which more than doubled to 15.9 trillion rupees by February 2018, and with another four months remaining this would further rise, while external debt was estimated at 60 billion dollars in March 2013 which is projected to rise to 93 billion dollars by June 2018.

And finally the PML-N under the leadership of Nawaz Sharif has placed an inordinate and baffling priority on road building under the Public Sector Development Programme (PSDP) and while PTI stalwarts argue that if they form the government in the centre they would focus on social sectors including education, health and clean drinking water yet these subjects have been devolved to provinces and one would have to wait and see how the party manages if it is in a position to form the government.

The major commonality between the PML-N and the PPP administrations in the centre post-Musharraf has been appallingly poor governance. Shaukat Tarin, Finance Minister during the PPP-led coalition government, cited poor performance of public sector entities causing an annual loss of 600 billion rupees and the PML-N inherited an energy sector circular debt of around 480 billion rupees. To date the International Monetary Fund, in its report dated March 2018 notes the PSE debt at 1.2 trillion rupees (4 percent of Gross Domestic Product) with arrears in the energy sector estimated at 514 billion rupees. Additionally corruption scandals as well as nepotism in appointment during the Zardari-led government and the PML-N led government have been too many to itemize.

To conclude, poor governance defined as incompetence as well as corruption has remained a major impediment to development in this country and to deal with this is what a one point charter of the economy item must focus on. The autonomy and powers of investigating agencies (inclusive of National Accountability Bureau, Federal Investigation Agency, as well as entities with access to relevant information including FBR and the State Bank), must be clearly defined, and strengthened in terms of granting them complete autonomy, ensuring that they meet the prerequisites of education and experience required to meet their position’s terms of reference; and a cadre of non-partisan lawyers dedicated to prosecution must be de-linked from the office of the Attorney General who is said to have shown a party bias.

Anjum Ebrahim, "A charter of country’s economy," Business Recorder. 2018-04-23.
Keywords: Economics , Federal Finance Minister , Economic strategy , National parties , Box solutions , Coalition government , Inherent efficacy , PPP , NFC , PML-N , FBR , PTI