THE inherent controversy of an election-year budget has been turbocharged this year. Seemingly insurmountable problems on the external-account front have rendered it a question of when, not if, Pakistan will return to the IMF. A politically beleaguered PML-N has been accused of forcing through a constitutional but contentious full-year budget to boost its prospects in the upcoming general election.
Meanwhile, inside the PML-N, the first budget of the post-Ishaq Dar era had necessitated a delicate balancing act: reversing some of Dar’s signature policies without repudiating the former finance minister, who had exercised vast power on behalf of former prime minister Nawaz Sharif.
But as Miftah Ismail, sworn in as finance minister earlier in the day, rose to deliver the budget speech, the opposition erupted in noisy protest against him. While Ismail’s appointment is constitutional, it is unprecedented and, in the presence of a minister of state for finance who is a member of the National Assembly, was unnecessary, according to the opposition. Inside parliament, the newfound convergence of political interests between the PPP and PTI was once again on display as MNAs from both parties rose in protest.
Speaking exclusively to Dawn after the budget speech, Finance Minister Ismail explained the decision thus: “Last night, it was discussed with the prime minister whether to suspend the rules or to go the ministerial route. It was decided that suspension of rules was not the right thing, hence this decision.”
While the elevation of Ismail is destined to be historical footnote, the budget he presented is not. Immediately pilloried by both the opposition and financial experts, the budget has been attacked for having failed to thread the needle between the extreme pressure on the balance of payments and political demands for handouts ahead of the general election.
“They know they don’t have to implement this budget and are probably sure they are not coming back,” said Naveed Qamar, former PPP finance minister and veteran party leader. “Everyone got a lollipop. Look, in a low-tax-to-GDP economy, you have to be careful that tax breaks in one area are compensated for in another area. They’ve done nothing of the sort and have tied the hands of the next government. It won’t be easy to reverse the handouts.”
Waqar Masood, former secretary finance under Ishaq Dar and a critic of the government presenting a full-year budget, was unhappy: “This is a complete abandonment of fiscal principles. The FBR will be very worried. We worked hard to raise taxes on bonus shares and dividends besides other things and they have just thrown it all away. It’s not in line with the imperatives of the economic situation.”
But Finance Minister Ismail insisted his budget is based on conservative, and therefore realistic, projections. “We have only estimated FBR revenues to go up by 11 per cent, which is less than the nominal growth of GDP. Unlike in the past where salary and pension increases were not accounted for in the budget, I have estimated all the increases and have included them in the budget. Our total expenditure will go down as percentage of GDP from 21.5 to 21.2,” the minister claimed.
He continued: “After the recent devaluation and export package, our exports have started to go up at a pretty good clip. In March, our exports were up by 24 per cent and imports up by only six per cent. We think such a trend will take care of the current account deficit.”
But speaking on background to avoid antagonising Dar and embarrassing Sharif, several PML-N leaders blamed the party’s predicament in the latest budget on Dar’s policies. “Personally, I agree the budget is reckless. Could have been far better,” a senior PML-N leader said. “We ended up here because of Ishaq Dar’s policy of not devaluing the rupee. The exports have started picking up, but will take time before the balance-of-payments position becomes stable.”
With no major financial shock anticipated during the caretaker government’s time at the helm, a financial reckoning may come towards the end of the calendar year if the budget projections prove off target or the haemorrhaging in the external account is not slowed or reversed.
“There are no good options for any government,” Naveed Qamar said. “Unless there’s a sudden newfound external donor, maybe the Chinese or Saudi, there’s not much anyone can do,” Qamar added, suggesting that a return to the IMF is inevitable.
Masood, the retired bureaucrat, was also pessimistic: “The IMF will likely demand a deficit in the range of 4-4.5 per cent (of GDP). The government has already projected to overshoot that. An adjustment later will require extreme belt-tightening.”
But Ismail is adamant that his budget numbers and projections will hold. “I feel strongly that the budget is sustainable and no mini budget will be needed.”
In a few months, soon after what is expected to be a bruising general election, the country will know if Ismail or his critics are right.
Published in Dawn, April 28th, 2018