Daily Times

A senior educationist in our university days, back in the late 1960s, once said that a person who is cursed by both parents becomes the president of Pakistan. And yet there is a long list of aspirants who would give their right arm to get this position. If not by both parents, at least you have to be cursed by one of them to become the finance minister of Pakistan.

But wait a minute, let’s get our perspective right. There is hardly any country in the developing and developed world where the finance minister’s job is not cursed. The global recession and the mess created by financial institutions because of unlimited freedom given under the neo-liberal mantra that everything should be left to the gods of the free market, is now casting a shadow on the vibrant Chinese and Indian economies also.

The Finance Minister, Dr Hafeez Shaikh, landed himself in the post he had always coveted in March 2010 when a frustrated Shaukat Tareen bowed out, as he was not allowed to implement his reform agenda.

All the finance and economic pundits agreed that the biggest challenge for Dr Shaikh would be the headwind, which is traditionally blown by political colleagues. Though he was no novice to a government job, his last assignment as the minister for privatisation did not bring him to cross swords with parliamentarians as he had to now. And perhaps quite often.

Dr Shaikh is not the first finance minister who has not been able to deliver because of little financial elbowroom and the unrealistic political considerations of successive governments. A cursory look at our finance ministers’ history shows that starting from the socialist Dr Mubashar Hasan, the political leaderships have given a tough time to all, with the exception of the all-powerful Ghulam Ishaq Khan (GIK). His babu mentality set the economy on a dangerous path of heavy domestic borrowing to meet non-productive current expenditure. It was evident even in the mid-1980s that domestic borrowing was a ticking bomb in Islamabad. But he angrily dismissed it when I raised the issue in Dawn. Today, it has blown up in our faces.

Dr Mahbubul Haq, who was the man with new ideas, had two brief stints as finance minister but was opposed by GIK and couldn’t do much except opening up a strict foreign exchange domain. He was the first one to fail in implementing sales tax at a retail level when the Lahore and Karachi bazaar went on strike. In between, even the government of General Musharraf made many attempts. So if the present government retreated after announcing Reformed General Sales Tax (RGST) because the political parties that have the bazaar, the MQM and PML-N, revolted, it is unsurprising.

During the PML-N’s two governments, Sartaj Aziz and Ishaq Dar were also not able to present any innovative budget that could boost revenues and the investment ratio. The ‘gentleman’ Sartaj Aziz was hooted by some of his colleagues. In the first few years of Musharraf’s regime, Shaukat Aziz did bring in some reforms, but his success owed much to the foreign debt repayment relief given by donors after 9/11.

Dr Shaikh served as an able finance minister of Sindh when he first entered politics. But this time he took a bigger responsibility at the Centre, when the official economy was being squeezed trilaterally. In this environment, with no fiscal and political room, he has been just muddling through for the last three years.

Before attacking the budget, analysts must take into account at least five major factors. One, the country is almost in a civil war, facing unabated terrorist attacks in Khyber Pakhtunkhwa, FATA and Balochistan. The commercial hub of Pakistan has been destabilised by the militant wings of parties. Two, the volatile regional situation has sucked Pakistan deeper into a quagmire because of its foolish national security and foreign policy. Three, foreign assistance and investment has shrunk because of our so-called national pride policy. Four, most importantly, government is too weak to take up any courageous economic reforms; and five, the country has seen two major floods in the last four years.

So in this situation what should be expected from the finance minister who is beleaguered from every direction but to present a budget with a huge fiscal deficit? The outgoing year has already shown a deficit of 7.4 percent, when all the subsidies of the power and public sector organisations are taken into account. For 2012-13, he wishes 4.7 percent, but that is based, of course, on the assumption that the economy will grow by over 4.5 percent, and it does not include the future burden of public sector enterprises and power sector circular debt.

The greater challenge for this government now is that while foreign assistance and investment inflow is drying up quickly, outflow is going up as payment time has arrived. In this situation, current account deficit balancing would be extremely difficult, particularly when our chest-thumping nationalists tell us to be tough with the US. What does that mean for people? The rupee to fall further against major foreign currencies, leading to high import costs and consequently, high inflation.

As always, much of the federal government’s development budget is to be financed through domestic and foreign borrowings. This being an election year, the political government would disallow any tough measures against the tax-evaders. They even backed out from a very genuine reform that businesses should enter the NTN or CNIC number of people they do business with or make payments to. The unscrupulous chambers had the gall to protest that it was not possible and the weak government buckled.

So what is keeping Pakistan’s overall economy afloat? According to studies done by micro-economists, the size of a parallel or black economy is almost 50 percent of the GDP. It is this sector that has been doing well, come what may. The other factor is that agriculture has performed well, in spite of all the challenges. Some credit can be given to government also, which has taken measures like higher support prices and subsidised fertilizer. The urban-based, urban-biased politicians and media consciously undermine the fact that there has been a huge transfer of money from the urban to rural areas, where 60 percent of Pakistanis live. On the other hand, because of the high level of a black economy, Pakistan cannot increase its domestic savings rate unless all tax-evaders are pulled into the tax net through a carrot and stick policy.

Another major challenge to Pakistan is energy sector mismanagement, which caused a loss of over two percent growth in GDP. The country is not that short of electricity-generation capacity but it is suffering from electricity theft, non-payment of bills by public and private sector consumers, low pricing and lack of investment in the maintenance of the existing power generation and distribution system. To put the house in order, we need zero tolerance for theft and non-payment of bills to begin with. This needs a strong political will, something that the government is devoid of.

Lastly, Dr. Shaikh’s predecessor Tareen had left an unfinished agenda. It was related to improving governance, which is neglected by government; adopting austerity measures by streamlining the government set up, which has too many ministries and divisions; push privatisation of a loss-making public sector, which is sucking the taxpayers’ money; and as said earlier, implement tax reforms to improve the tax to GDP ratio. However, because of the impending elections, this government has announced that there will be no more privatisation.

What does the entire exercise show? Political expediency and weaknesses are costing billions of rupees to the economy and slowing down our growth.

The writer can be reached at ayazbabar@gmail.com