Eidee given by new govt

A belated Eid Mubarak from me to our readers, a delay that was necessitated as my column appears on Monday. The question for Pakistanis today is the eidee, if any, given by the newly-elected PML (N) government to the people of this country. There is no argument that the PML (N) government inherited an entire range of problems but criticism about the rate of delivery on resolving them is gathering momentum.

The government’s defence is that it requires more time than the elapsed two months and a week. Leading the critics is the Pakistan Peoples Party Parliamentarians (PPPP) – a party that completed its five-year constitutional term on March 16 and is credited with compounding the problems that it had inherited in 2008. This does not imply that PPPP leadership thought its victory would be limited to its home province of Sindh in the May 11 general elections, like the PML (N) was limited to Punjab in the 2008 elections. President Zardari was quoted by too many on close terms with him as claiming that the PPPP will reemerge as the single largest party in the National Assembly after the 2013 elections but would need to form a coalition like in the 2008 elections. He was unwilling to heed the warning that the appallingly poor performance of the party during five years in government may reflect in the election results; and challenged all those who contended that the electorate may punish the party for its poor governance and high levels of corruption by insisting that they debate him constituency-by-constituency to determine the number of seats the party would win.

What let the President down were the people of this country who did not vote for “electables” but instead voted the party out of power on performance. This is not to argue that large parts of rural areas did not vote for the electables, but to conclude that five year non-stop democracy has brought some change in the psyche of a part of the electorate that has begun to take note of performance over tribal/baradari loyalties. This is perhaps the biggest gift that any civilian government could give to this country. And this is despite the fact that what was right on June 5 when Prime Minister Nawaz Sharif took oath would be easier to respond to than to itemise what was wrong.

Another thing that was certainly corrected during PPPP’s five year rule was the country’s constitution – the document itself – that took over a year to draft and is a welcome indication of how political parties can work together and reach a consensus. This does not imply that the constitution must never be touched for after all it is an organic document. Thus the fact that the Eighteenth Constitutional Amendment did not focus on granting the federal government the right to collect income tax from the rich landlords at the same rate as from salaried people/industrialists/ owners of huge commercial houses does require a revisit. And another major PPP-led coalition government’s contribution was the agreement on the 7th National Finance Commission (NFC) award which not only enhanced the provincial share of the divisible pool but also acceded to the long standing demand of the smaller provinces to give greater weight to backwardness/poverty and revenue source in the distribution of the provincial share of the divisible pool.

The positive outcome of the Eighteenth Amendment and the NFC award has been greater financial autonomy and with it greater responsibility for the performance of key social sectors including education and health. And garnered a spirit of competition and learning from each other. This spirit was amply reflected in the setting up of provincial revenue authorities with Sindh clearly taking the lead to enhance its reliance on its own resources to 21 percent in the current year’s budget. Punjab followed Sindh and set up its own Board to collect sales tax on services but has still to catch up to reach the 21 percent reliance on its own resources. And in the current year’s budget the KPK government too announced and has inaugurated its own revenue board. Competition to outdo each other was strengthened post-May 11 elections with a clear mandate given to PPP to rule Sindh, PML (N) to rule Punjab and Pakistan Tehrik-i-Insaaf to rule Khyber Pakhtunkhwa. Unfortunately, however, what was wrong about these two rights (ie the Eighteenth Constitutional Amendment and the NFC award) was that the beneficial effects did not filter to the common man who remained blithely indifferent to them.

So what is the PML (N) Eid gift to the nation? So far, the focus is on rhetoric and sustained insistence that the party intends to do what is right by the people. What is right is of course subject to interpretation and so far the public’s interpretation is not favourable. Only nine weeks have passed since Nawaz Sharif took over power and those who argue that it is too early to make a prognosis on the party’s performance would do well to remember that the budget for the year is out, a budget that encapsulates the economic vision of the new government. In addition, the energy policy is also out and the first leg of its implementation has begun: a massive rise in tariff rates approved by the Prime Minister and so notified with the objective of reducing the subsidies component of the budget thereby reducing the deficit.

What has baffled me about the recent tariff rise is that it comes in the wake of a series of economic measures that are expected to choke the ability of the common man to meet the funding requirements of his/her kitchen budget. The 2013-14 budget raised general sales tax from 16 to 17 percent – the objective was to increase revenue while its inflationary impact was ignored. The State Bank of Pakistan reduced its lending rate, a long standing PML (N) demand, the objective being an increase in private sector borrowing to finance economic activity while again its impact on inflation that is well researched in economic theory was ignored. Electricity tariffs for the commercial and industrial sectors were raised by over 40 percent which again would not only fuel inflation domestically but also compromise the country’s ability to meet export orders with a negative impact on the balance of payment position. Or in other words our reliance on foreign loans would rise and with an eroding rupee value vis a vis other currencies the cost of fuel imports would rise further and would be tantamount to giving a Neurobin (Vitamin B) injection to inflation.

To argue that firefighting necessitated such policies is simply not credible. There is a solution but it lies outside the realm of the budget. Total current expenditure has risen from 2.9 trillion in the revised estimates for last year to 3.1 trillion rupees in the current year. The largest component of current expenditure is interest payment – from 1.02 trillion rupees in the revised estimates for last year to 1.1 trillion rupees budgeted for the current fiscal year and defence was allocated 627 million rupees as opposed to 570 million rupees in the revised estimates for last year. Thus a total of 56 percent of all current expenditure is allocated for items that no government can manipulate. But disturbingly despite a reduction in protocol as well as the number as well as perks of the ministers/ministers of state general public service expenditure was budgeted to rise by 9 per cent (from 2.1 trillion rupees in the revised estimates for last year to 2.35 trillion rupees in the current year) and this figure does not include the 10 percent raise in public sector salaries that Dar announced after resistance to his economically sound measure to keep salaries constant this year.

Development budget for providing essential physical and social infrastructure is unfortunately the first that is hit in the event of poorly performing macroeconomic indicators in Pakistan. It is politically challenging to be upfront and admit to the public that a reduction in the outlay for development is necessary to improve the performance of key macroeconomic indicators and turn the economy around. But Dar actually raised development expenditure from 851 billion rupees to 1.15 trillion rupees. To improve governance does not require development expenditure and could have been undertaken within the financial parameters set by current expenditure. This too is unfortunate and reflects a complete lack of out of the box thinking on Dar’s part.

So what eidee did we receive? Terror attacks by fundamentalists, criminals and those engaged in ethnic and sectarian violence. High inflation due to eroding rupee value both domestically and internationally, flooding and last but not least loadshedding though one disaster namely rains may ease another namely load shedding hours.