Ahead of the next year’s budget, the country’s economic team has got a new captain — and a strong one, according to his own description — to steer the economy in difficult circumstances.
Shaukat Tarin returns to a position he captained more than 11 years ago in the PPP’s equally challenging tenure and, among other things, delivered two major landmarks.
First, he successfully negotiated a $11.2 billion bailout package with the International Monetary Fund (IMF) that he could not complete before leaving the cabinet portfolio to bail out his own troubled Silkbank Ltd, the only reason he had quoted then. “I have resigned today as a matter of principle. I have to raise equity from the market for Silkbank and I could not do that while working as finance minister because of a clear conflict of interest,” Mr Tarin had told Dawn on Feb 23, 2010.
His bank is still not out of the woods as he re-enters the federal cabinet of Imran Khan. Silkbank is struggling to raise funds for increasing its capital adequacy ratio (CAR) from existing 4.12 per cent as of September 2020 to 11pc under State Bank of Pakistan (SBP) rules.
Fauji Foundation was earlier engaged in due diligence of Silkbank but lost its interest in acquiring the entity only recently. Habib Bank Ltd is now examining the possibility of taking over its consumer portfolio.
The new finance minister has criticised Asad Umar and Dr Shaikh for entering the government unprepared and reviving the IMF programme with too harsh conditions
The successful transaction will require regulatory approval by the SBP whose governor, Dr Reza Baqir, is seeking complete autonomy and protection against any suit, prosecution or any other legal proceedings, including for damages for any act of commission or omission done in exercise or performance of any function, power and duty not only for himself but the entire board of directors, deputy governors and members of the monetary policy committee, officers and employees of the central bank. Mr Tarin has hinted at the continuity at the SBP.
His then replacement — Dr Abdul Hafeez Shaikh — could not complete the 2008-09 IMF programme as the PPP government came under political fire. It would be interesting to see if Mr Tarin is able to complete the current IMF programme revived by Dr Shaikh days before his abrupt and unceremonious exit from the PTI government.
Second, Mr Tarin had been able to announce the consensus-based seventh National Finance Commission (NFC) award, a rare feat although it has since received criticism from all powerful quarters that matter for giving too much of divisible pool resources to the federating units. The provincial shares were increased from 46.5pc to 57.5pc of the total divisible pool by 2011-12.
It is, however, another matter that a loose description of the provincial responsibilities did not deliver the other side of the bargain — increase in revenues by the provinces in more than a decade. At the fag end of the NFC agreement under the miscellaneous section, the seventh NFC award recommended that the federal and provincial governments “should streamline” their tax collection systems to reduce leakages and increase their revenues through efforts to improve taxation in order to “achieve a 15pc tax-to-GDP ratio by 2014-15”.
It also required that the provinces “would initiate steps to effectively tax the agriculture and real estate sectors” and the federal and provincial governments “may take necessary administrative and legislative steps accordingly”. With increased cash flows, the provinces had no incentive to deliver on “should streamline or may take necessary action” to raise their own taxes, and rather started giving back cash surpluses to the federal government to help finance bloated budget deficits.
Equally importantly, the subsequent governments, including the one that he now joins as finance minister, have tried to take over, instead of giving up, more provincial jurisdictions such as health and education that should have been financed by the provinces under the combined devolution impact of the 18th constitutional amendment and the seventh NFC award.
Mr Tarin has criticised the two finance ministers of the current government — Asad Umar for entering the government unprepared and without any plan and indirectly Dr Shaikh for reviving the IMF programme with too harsh conditions. Under his guidance, the authorities would be seeking this week the deferment of steep energy tariff increases committed with the international lending troika of the IMF, World Bank and Asian Development Bank.
This may involve major changes to the budgetary estimates for the next year and thereafter on the premise of a third round of Covid-19 pandemic. The restructuring of a lending programme within weeks of its revival after a year-long suspension would need a lot of hard work.
This comes as defence allocations have dropped from 3pc of GDP in 2017-18 to 2.9pc last year and agreed at 2.74-2.78pc of GDP by Dr Shaikh this year and the next two years under the IMF agreement was approved by the federal cabinet. Interestingly, these allocations have been revised at 2.4-2.5pc of GDP for the current year and the next two years by Hammad Azhar—led finance division as part of the budget strategy paper approved by the federal cabinet last week.
This is just one example of the changing budgetary allocations in a short span of two weeks and may remain fluid in the run-up to the budget in less than two months while keeping the existing Fund programme intact until the next quarterly review in the first week of June almost as part of the budget process based on the performance review for the end of March to secure a larger disbursement of over $1bn.
While delivering on these two counts and putting the economy back on the recovery path, Mr Tarin, in a polarised polity of Pakistan, will have to stay tall on the conflict-of-interest sermons Prime Minister Imran Khan and his party followers keep rolling out on sugar prices amid his close relationship with Jahangir Khan Tarin, Akhtar brothers and Anwar Majeed who jointly control almost half of the country’s sugar industry.
Published in Dawn, The Business and Finance Weekly, April 19th, 2021