Disturbingly, the gains in reducing the deficit are not sourced to widening the tax net but on taxing transactions and the already taxed that compromised the productive capacity of the private sector and growth of the informal sector. In addition, the electricity shortfall and a subsequent rise in tariffs in comparison to other regional countries, a key input for most productive activities, compromised our exports whose results are clearly visible today. The decline in exports was further fuelled by the policy to keep the rupee overvalued attributed to the flawed perception by the then Prime Minister Nawaz Sharif as well as his Finance Minister Ishaq Dar that a strong rupee reflects strong macroeconomic performance, notwithstanding the fact that regional countries, including India and China, were depreciating their currencies to be able to compete in the international marketplace. The fact that the Fund team did identify that an overvalued rupee could become a source of external imbalance without making it a time bound structural benchmark was akin to sweeping the problem under the carpet in the short-term and was repeatedly pointed out by this newspaper.
The PML-N government consistently failed to reduce its current expenditure attributing it to meeting the security costs of the country, however, defence outlay rose from 570 billion rupees in 2012-13 to 920 billion rupees in 2016-17 (a rise of 350 billion rupees) while current expenditure rose by nearly a trillion rupees (from 2.9 trillion rupees in 2012-13 to 3.9 trillion rupees in 2016-17) accounted for by a rise in mark-up/interest payments on domestic and foreign loans as well as failure to check the rise in expenditure on running the civil government. Public Sector Development Programme's outlay rose but not by enough to fuel the growth rate though Dar relied heavily on data manipulation to show a higher growth rate - a claim that was easily challenged as the administration's claim was not rationalized with data from within other government ministries/departments and credibly industry sources.
We also consistently maintained that as a consequence of the economic policies being implemented during the four and a half years of the PML-N administration, two major negative factors would be in evidence in the last year of its tenure: (i) foreign concessional budget support would dry up after the Fund programme was completed because of lack of confidence of bilaterals/multilaterals that the country would adhere to the reform agenda. The fact that the Fund itself was partly responsible for the government's failure to implement meaningful reforms in the external, fiscal and power sectors sadly remains unacknowledged by the multilaterals; and (ii) the government would increase reliance on expensive borrowing from the commercial banking sector abroad as well as through issuing Eurobonds/sukuk, at rates well above the market rates. Last fiscal year, after the end of the Fund programme in September, the government acquired over 4 billion dollars in commercial loans from the external banking sector and this year it is expected to surpass even that total.
To conclude, Pakistan needs a finance minister who is not only qualified for the job but also someone who has the backbone to take on the party stalwarts if the needed reforms are likely to be opposed on political grounds.
Copyright Business Recorder, 2017