Prime Minister Shehbaz Sharif tweeted on 8 June, two days before the budget was presented in parliament: “coalition government has taken some difficult decisions to stabilize the economy. We didn’t care for their impact on our political capital, for doing so is in the best interest of Pakistan. For how long will we continue to be consumed by our narrow interests at the cost of national duties?”
Seven days later, on 15 June, after the Senate committee on finance had submitted its recommendations, the government presented an amended bill that sought to raise additional revenue with Federal Board of Revenue (FBR) estimating super tax collections at over 200 billion rupees while independent analysts placed the figure at over 400 billion rupees.
Opponents of the coalition government contend that the sacrifice of political capital through taking some extremely unpopular economic policy decisions by the coalition government, consisting of eleven political parties, is more than balanced by their reported fear that former Prime Minister Imran Khan was going to succeed in having the top leadership of PML-N and the PPP convicted of corruption and disqualified for life. This claim stands in spite of the fact that only two prominent leaders have been disqualified for life to-date – a political heavy weight Nawaz Sharif who was convicted for not disclosing that he had a residence permit (Aqama) for Dubai, a sentence passed in 2017 during a PML-N government, followed by Jehangir Tareen who nonetheless continued to play a role in politics till his falling out with the then Prime Minister Imran Khan. All other leaders are out on bail after being incarcerated for several months.
Notwithstanding Sharif’s disqualification and claims that the Pakistan Tehreek-e-Insaf (PTI) would sweep the next polls whenever they are held a look at the 2018 election results reveal that in spite of apparent pre-poll, during poll (and after poll rigging) at the time, PML-N netted 12,934,589 votes (24.35 percent of the total votes cast) accounting for 64 general seats, 16 women seats and 2 minority giving a grand total of 82 national assembly seats against PTI’s 16,903,702 votes (31.82 percent of the votes cast) with 116 seats, 28 women and 5 minority giving a total of 149.
If one adds only one of the eleven coalition partners to the equation, notably the Pakistan People’s Party, which won 6,924,356 votes (13.03 percent of the total) with 43 general seats, 9 women seats and 2 minority giving a grand total of 54 seats the votes cast in 2018 for PTI were 2.95 million less than votes cast jointly for PML-N and PPP. However, telling is the fact that in spite of a significant higher number of combined votes won by PML-N and PPP the country’s electoral politics did not allow them to form the government – a factor that Imran Khan would do well to take note of for the next elections.
There is ample evidence that Pakistan’s major national political parties have large numbers of diehard supporters who are not swayed by performance or convictions but their numbers are inadequate to form a government in the centre. What is required is the swing vote (which is perhaps what Imran Khan is relying on), smaller regional parties like the MQM and BAP (with their own politico-economic compulsions) and electables (numbering in excess of 25 to 30 if one adds the independents who routinely shift their loyalties in favour of the ruling elite — civilian or military).
The response to the question whether the voter base has changed dramatically since 2018, is, as expected, highly partisan, sometimes backed by partisan surveys. One would however expect frequent government changes to be accompanied by policy shifts reflective of different economic ideologies, that would account for uncertainty in the market with a negative fallout on productivity and investment.
While uncertainty remains a major factor with each administration’s dismissal prior to its end of tenure yet sadly, in spite of repeated rhetoric for a charter of the economy, a change in policies has been severely limited to specifics (over and above what has been agreed with the IMF given that Pakistan is a perennial borrower, on at present its 23rd Fund programme) — a tweaking of the tax rate that may benefit one group over another, a tweaking of development projects that may help one party/region over another, and/or extending subsidies to counter the effects of inflation. It is this consistency of at least five flawed policies that constitute in-the-box thinking, as opposed to the required out-of-the box, that accounts for the current economic impasse — an impasse that is getting worse with each subsequent administration.
First, a persistent deteriorating performance of the energy sector (with circular debt at a high of nearly 2.5 trillion rupees today) and passing on the buck to the hapless consumers for sustained sectoral inefficiencies that have implications on output and employment. Blaming the previous administration has become the norm and continues to this day. However, the problem was exacerbated by delays in procurement of fuel during the past three years and, more recently, with the high international price of fuel due to the Russia-Ukraine war, adequate purchases to meet domestic demand cannot be funded due to inadequate foreign exchange reserves.
Second a tax structure that seeks to preserve a party’s perceived voting base. This accounts for a fixed tax on retailers rather than ensuring that they file their returns and/or to levy a tax on their turnover in next year’s budget. Salaries of between 50,000 to 100,000 lakh rupees per month will now pay tax at the rate of 2.5 percent and those earning between 100,000 to 200,000 rupees will pay 12.5 percent tax at IMF’s reported insistence – a group that is likely to vote for Imran Khan in the next elections. The sustained heavy reliance on indirect taxes whose incidence is greater on the poor than on the rich (including petroleum levy regarded as the lowest hanging fruit) continues into the next budget irrespective of the one off super tax on rich 15 sectors and allowing “favourite” units off with lower taxes against others producing the same commodity. This is cited as the reason behind Imran Khan’s promotion of the construction sector while the Sharifs have benefitted the retailers.
Third, installing one’s favourites to run state-owned entities that accounts for a steady rise in liabilities with well over a trillion rupees of budget support for these entities today including extending sovereign guarantees.
Fourth raising current expenditure by leaps and bounds (including fully funding pensions without employee contribution with no tax payable on pensions) necessitating heavy reliance on foreign borrowing to bring the budget deficit down to a more sustainable level as well as domestic borrowing to fund ever-rising expenditure while failing to rationalize development expenditure to ensure that those projects near completion are prioritized over all others. Privatization as a source of revenue continues from one budget to the next even though the climate is simply not conductive to engage in this process.
Fifthly, when all else becomes untenable for the public and with an eye on the next elections subsidies through printing money and/or borrowing from abroad are unwisely supported that raise inflation and increase indebtedness. If the former Prime Minister Imran Khan is guilty of the 10 rupee per litre reduction in petroleum products effective 1 March 2022 at a time when international prices were rising as well as a reduction in electricity tariffs till 30 June 2022 yet considering he left office on 10 April 2022 the incumbent government is guilty of continuing those subsidies till end May – or a period greater than their applicability during Khan’s tenure. While the budget for the current year has halved the subsidies that were realized in 2021-22 yet given the massive rise in food subsidies this figure is likely to prove unrealistic.
There are reams upon reams of studies/conditions for loan approvals as well as the Memoranda of Economic and Financial Policies (MEFP) gathering dust in relevant ministries that our government(s) have signed with the Fund pledging structural reforms that remain pending to this day accounting for the harshest ever upfront prior conditions before the staff level agreement for the seventh review is reached and Fund’s Board approval granted for the tranche release.
To conclude, notwithstanding political rhetoric there is an urgent need to implement structural reforms and abandon tweaks (including taxes, the discount rate, development expenditure) that have been easily reversed as politics (tacitly or explicitly) continues to play the predominant role.
Anjum Ibrahim, "The politics of economic policies," Business recorder. 2022-07-04.Keywords: Economics , Tax collections , Federal Board , Political capital , National political , Economic policy , Economy , Imran Khan , Shehbaz Sharif , Pakistan , Dubai , FBR , MEFP , PTI , PMLN , MQM , PPP