He is raising the bar, upending the Budget Strategy Paper and the associated macroeconomic targets approved by the federal cabinet on April 13. Soon after taking over, Finance Minister Shaukat Tarin started talking about changing gear to growth from years of stabilisation achieved ‘through strangulation’.
Taking a departure from the earlier policy stance of the PTI government, he has advocated triggering the country’s growth momentum by running the wheel to generate job opportunities and achieve higher revenues unlike the long stabilisation phase that created many ills, including the circular debt.
He was critical of the high policy rate of the State Bank of Pakistan (SBP) since the start of the IMF programme saying the central bank “overdid initially” before bringing down the interest rates following Covid-19. He supports an independent and autonomous central bank but believes in maintaining a balance between autonomy and accountability. This comes amid the central bank’s top men reaching out privately to the cabinet members for support against ‘personalised public criticism’ from certain powerful quarters besides making frequent visits to the Prime Minister’s Office.
The new economic team believes that there is no need for more taxes
In the first go, he is setting the next year’s GDP growth target to at least 5pc and beyond 6-7pc for 2022-23 — unlike the previous targets of 4.2pc and 5pc by 2023-24. This has to be done through the Public Sector Development Programme (PSDP) and by incentivising housing, industry, agriculture and small and medium enterprises to enlarge the revenue envelop, he said at his maiden policy statement, adding the next year’s PSDP would be Rs900bn — almost 100bn higher than the one finalised by his predecessor Dr Hafeez Shaikh and approved by the cabinet at Rs800bn.
He contends that with over 2.4pc population growth rate, Pakistan has to generate at least 2m jobs a year and unless that was done through sustained growth for 10-15 years, there would be chaos in the streets.
In doing so, he expects international lenders to relax tough conditions as the nation fights the third wave of the pandemic and has reported “sympathetic view” from the World Bank more than the IMF. The IMF’s spokesperson Gerry Rice has since hinted at vague willingness of the IMF to discuss Pakistan’s economic conditions following the third wave of Covid-19, saying the Fund was ready to discuss the sixth economic review of the programme.
Mr Tarin has already promised to come back with a revised budget strategy paper and has engaged economic experts and business leaders to come up with short and medium-to-long-term recovery plan for selected priority areas like sustained and inclusive economic growth, employment generation, price stability mechanism, tax reforms, housing sector, ease of doing business, pension reforms, rationalisation of subsidies, food security, revamping power and energy sectors, social protection network, health and improvement in overall governance.
Assisted by SAPM on Finance and Revenue Dr Waqar Masood Khan, the new economic team believes that there is generally no need for more taxation either since all the taxes are already imposed and would start flowing in to the kitty as the growth picks up while the tax administration focuses more on netting the untaxed by direct taxes and targeted and systematic audit.
Mr Tarin is advocating the concept of “pay for performance” for the civil bureaucracy to make the government an employer of choice through the Pay and Pension Commission.
He is still talking in bits and pieces and would perhaps need some time to come up with a delivery plan and get formally engaged with the IMF to change policy stance and make programme adjustments. For example, Prime Minister Imran Khan is staunchly opposed to an increase in power tariffs and taxes and yet he wants the two sectors to be dealt differently.
“We will keep increasing revenues by 1-1.5pc of GDP per year for the next seven to eight years to jack up the tax-to-GDP ratio to around 20pc,” he has promised, saying it was unreasonable to increase the revenue target at the start of the IMF programme from Rs3,800bn to Rs5,500bn in one ago. “This will not be done now. We cannot increase the power tariff so much, nor is there any room for incremental taxes. The people are already fed up.”
But there is no quick fix for the energy sector, particularly the power segment where the circular debt is poised to cross Rs4.7 trillion unless the all-inclusive circular debt management plan is implemented that also involves massive tariff increases. Privatisation on the power front is not an immediate option to make up for the gap arising out of the desire for not increasing electricity rates that have already reached punitive levels.
The absorption of the surplus electricity capacity remains a key challenge amid high tariffs and struggling economic activity while distribution companies and government policies discourage new electricity connections. It is on record that millions of applications for new electricity connections are pending with distribution companies and consumers are compelled to utilise unfair means to have access to electricity.
In a recent public hearing, the power regulator had disclosed that about 950,000 applications for new connections are pending with Lahore Electric Supply Company alone while thousands of residents in tens of developed housing societies in the federal capital are not given connections. The situation in other distribution companies would be no different.
Mr Tarin told Dawn that the federal cabinet had already decided in principle to address this issue and facilitate the maximum number of new connections. An implementation strategy is in the making.
Asked how the fiscal gap — for not increasing tariff amid the galloping circular debt in the absence of privatisation and no steep revenue increases — would be bridged, Mr Tarin said he believed in action and would immediately move to get the state-owned enterprises (SOEs) out of the ministries’ control and give them to private-sector experts having no conflict of interest. “I know only one thing and that is action,” he said, adding that “The way we turned around United Bank and Habib Bank, we would change the SOEs before making them privatisable.”
He has already asked the provinces to go for expenditure rationalisation and has hinted at doing a similar exercise at the centre. He said the functions devolved to the provinces under the 7th NFC award he delivered 11 years ago were to be financed by the provinces, but the centre renamed various ministries with large footprints, which needed to be rationalised.
Published in Dawn, The Business and Finance Weekly, May 10th, 2021