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The Pakistan Muslim League-Nawaz government is all set to announce the last budget just weeks before it steps down to allow a caretaker set-up to take over.
It does not need any rocket science to figure out what kind of a budget the government is going to announce on April 27 ahead of the elections expected to take place in August.
The last budget of a political government has usually been dubbed as ‘election budget’ in Pakistan where politics takes precedence over economics.
The rulers generally dole out huge sums of money to their cronies and party lawmakers in the name of development funds in order to win voters sympathies on the polling day.
But given the economic vulnerability faced by the country in the coming months, as warned by the International Monetary Fund (IMF), lavish development spending would only aggravate the economic woes of the country.
Rana Afzal Khan, Minister of State for Finance, however, ruled out any possibility of releasing huge funds for development projects as the this budget would come into force after the present government would have stepped down.
“It will be routine budget. We have no plans to impose any new taxes,” he told the Money Matters.
The IMF has already warned the government against unabated increase in the twin deficits. Any imprudence in spending public money would further only increase the fiscal deficit which according to the IMF and the independent analysts would erode economic gains made so far.
The Executive Board of the IMF has recently called on the government to take immediate steps to arrest the continuing deterioration in the external and fiscal accounts.
“Pakistan’s near-term outlook for economic growth is broadly favorable. Real GDP is expected to grow by 5.6 percent in FY 2017/18, supported by improved power supply, investment related to the China-Pakistan Economic Corridor (CPEC), strong consumption growth, and ongoing recovery in agriculture,” the board said after its first Post-Program Monitoring Discussions with Pakistan.
“Inflation has remained contained. However, continued erosion of macroeconomic resilience could put this outlook at risk. Following significant fiscal slippages last year, the fiscal deficit is expected at 5.5 percent of GDP this year, with risks towards a higher deficit ahead of upcoming general elections.”
The board called on the government to strengthen fiscal discipline through strong measures to raise revenues and also contain current expenditures without disturbing pro-poor spending.
However, the beleaguered government which is already facing tremendous political pressure because of disqualification of its supreme leader, Nawaz Sharif, and loosing Senate elections to its opponents, is unlikely to take any taxation measures to raise revenues which run risk of triggering a public backlash and also annoying powerful political lobbies.
Economic pundits believe that the government might take politically popular but economically imprudent decisions before completing its term, leaving it for the caretaker government and the one formed after the general elections to deal with the repercussions.
“We are heading towards another bailout package from the IMF and I fear that the conditions attached to that program would be very horrible given deteriorating ties between Pakistan and the United States,” according to senior economist Dr. Shahid Hasan Siddiqui.
Given the Paris debacle whereby Pakistan would be put on the ’grey list’ of terror financing countries in June, it is difficult for the country to secure any favorable conditions from the IMF should it go for another bailout package because of the United States which has dominant role in the Washington-based lending agency.
“This will be more of a political package where you have to ascribe to ‘do more’ mantra,” Siddiqui added.
The Minister of State, however, said there are no plans under consideration by the current government to seek a fresh bailout package from the IMF.
“Personally, I am not against seeking package from the IMF but this issue has become so politicized that we are not considering it at the moment,” he said.
“We need 3.5 billion dollars to meet our liabilities and we have options other than IMF to get money. We have already evolved a strategy for ourselves. We may raise money through launching more bonds and right now we have no plans to revert to IMF.”
Analysts warned the government has to evolve a well thought-out economic strategy to deal with the growing challenges failing which it would have to face dire consequences.
The IMF too sounded the same warning that the risks for Pakistan to repay the loan under the Extended Fund Facility has increased in view of the rising external and fiscal financing deficits and declining reserves.
It is ironical that the IMF is raising alarm bells for Pakistan’s economy just an year and a half after it successfully concluded a three-year loan program with the lending agency. At the time, the IMF was saying that Pakistan faces a “moment of opportunity” to consolidate its hard-earned the macroeconomic gains and achieve economic stability through strong structural reforms.
But unfortunately the political instability in the country after government embroiled in the Panama Papers scandal shifted its focus away from economy and there is apparently no chance of it putting its focus back on economy.
Sharp increase in external account deficit as well as fiscal deficit, falling exports and unprecedented in circular debt in the power sector and depleting foreign exchange reserves should be serious concerns for the government. It should have done some homework for a strategy to deal with these challenges but it seems the rulers are just killing their time.
The government’s seriousness in tackling key economic issues can be gauged from the statement of Mr Miftah Ismail, the de facto finance minister, who said the government would hand over bankrupt Pakistan Steels for free to the buyer of loss-making PIA. Hours later, he retracted the statement saying that he has made the remarks in a lighter vein.
The IMF warning seems to have fallen on deaf year and there has not been any urgency in the government’s circles to tackle the situation. The opposition also seems equally indifferent as it only wants to dislodge the government and takes over rein of power after elections.
In such a situation, one can easily conclude that Pakistanis once again should brace up for more testing times in the coming months and years.
The writer is a senior journalist based in Islamabad
