The Federal Minister for Planning Development and Reforms, Khusro Bakhtiar, stated that the twelfth five-year plan (2018-23) aims to achieve 5.8 percent growth, projected on the basis of 3.6 percent growth in agriculture, 6.1 percent in industry, and 6.8 percent in services during the five-year plan period. The five-year consolidated growth would pick up from the current 4.2 percent to 7 percent during the final years of the plan period, he stated. The plan’s focus, Bakhtiar added, would be on social sectors, poverty alleviation, job creation and improving governance in line with the vision of the incumbent government. The Minister did not share further details of the plan with reports indicating that the plan prepared by the previous administration has been only slightly tweaked by the incumbent government with water supply projects of Balochistan being a major casualty.
Pakistan’s five-year plans have traditionally reflected the available economic expertise of the Planning Ministry that, sadly, has never had the power to ensure either: (i) adequate allocations to bring about structural changes in the economy – a task made all the more difficult with respect to the focus on social sectors as these subjects have been devolved to provinces with the Pakistan Tehreek-e-Insaf (PTI) government installed in only two out of four provinces; or (ii) generate revenue both at the federal and the provincial level to meet the revenue requirements. In this context, it is relevant to note that Sindh is the only province that has made great strides in generating revenue with all other provinces lagging far behind Sindh’s efforts. Hence the PTI would be well advised to learn some valuable lessons from the Sindh Revenue Board.
The failure of the PTI government four and a half months after it assumed office at the Centre to ease investor concerns with respect to implementing a doable reform agenda has generated market uncertainty. Manufacturing output has declined from over 6 percent in last fiscal year to less than one percent in the current year. Reports indicate that the government has borrowed in excess of 12 billion dollars from friendly countries for one year and that the pressure from external indebtedness is unlikely to abate this year or the next. Domestic debt has risen by 21 percent (rising by 9.6 billion rupees in the first four months of the current fiscal year) and external debt stock rose by 17 percent till November 2018. In spite of a hefty export promotion package funded by the taxpayers, exports have risen by only one percent with the pressure on the current account deficit not waning significantly.
Disturbingly, the PTI government, like its predecessors, assumed that its selections at key posts in autonomous entities as well as in government departments, including the Pakistan Cricket Board, are appropriate – an assumption that was proved wrong during the tenure of the previous administrations. Good governance requires setting a selection/appointment system in place that would be difficult to interfere with by the executive and that would be difficult to abandon by subsequent administrations.
Fitch, a global rating agency, has projected budget deficit at 6 percent of GDP, which is unsustainable, and in the event that Pakistan goes on an International Monetary Fund programme, this target would not be acceptable to the Fund which would imply raising revenue from sources that are regarded as doable, and a cut in development expenditure with obvious negative implications on growth.
Business Recorder has consistently urged the PTI government to begin to undertake out of the box solutions to the ongoing economic impasse including: (i) cutting current expenditure guzzlers notably defence and civil administration given that the state of the economy requires a sacrifice for a year or two by all sectors; (ii) raising revenue through widening the tax net and not through raising withholding taxes on items/services sector, that account for double taxation on filers who first have their income tax cut at source and then as and when they buy an item/service on which a withholding tax has been imposed. Non-filers have not been tempted to file their returns as a consequence of higher applicable withholding tax rates; (iii) sharing the recommendations of the task forces with the public and invite comment before firming up those policy measures that the government decides to take; and (iv) domestic debt servicing cost, Fitch maintained, is currently at 31.2 percent of current expenditure and there is an urgent need for the government to stop borrowing domestically as its inflationary impact may raise prices in double digits. True, vegetable prices have declined in recent days but edible oil has risen due to the raise in gas rates.
To conclude, the government needs to share what it intends to do in the economic arena rather than taking ad hoc decisions including a ‘mini-budget’ this month that would raise revenue but also raise the cost of doing business with negative repercussions on investment and further erode the quality of life of the poor through higher inflationary pressures.
(This news/article originally appeared in Business Recorder on January 10th, 2019)