The PML-N government, which is preparing to present its next budget by the end of April, has been asked by the adviser on finance to ensure business as usual aimed at avoiding additional relief and sanctioning new development schemes.
In addition to that, Prime Minister Shahid Khaqan Abbasi is said to have been told by some important official and unofficial quarters to drastically cut non-essential and luxury imports to narrow down the burgeoning gap between imports and exports. Trade deficit of $13 billion has reportedly been estimated during the current financial year due to $55 billion worth of imports and $24 billion worth of exports.
The government has also reportedly been advised, including by some worthy party leaders, to avoid presenting the new budget as it is unlawful and the matter should be left to the interim government. If all that has to be done, they advised, along with some officials of the Ministry of Finance, to desist from extending 10-15% relief to the salaried class, which will alone have an additional Rs500 billion burden on the budget.
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But those who are close to Adviser on Finance Miftah Ismail maintain that he has been told by former prime minister Nawaz Sharif to provide relief for the salaried class as it is the political need of the ruling party considering the general elections that are around the corner.
The adviser, it is said, felt helpless to carve and implement his planned budget and has been forced to follow dictates of the party’s leadership.
It is generally believed that the budget announcement should have been left to the interim setup which can plan three-month tentative budget estimates to be followed by the new government to go for an eight-month budget to avoid legal and financial difficulties.
The presentation of the budget much before time has been termed violation of the 1973 Constitution.
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However, cutting non-essential and luxury imports including automobiles, electronics goods, mobile phones and all kinds of foodstuff will be a Herculean task. The government needs to cut $8-9 billion of such imports to manage its current account deficit, which is feared to reach $16 billion by June 30 this year.
To fulfil that objective, the government needs to introduce quotas on imports that is allowed by the General Agreement on Trade and Tariffs (GATT). It can save close to $3 billion on account of automobile imports alone by introducing quotas.
“Pakistan today is facing deep and protracted financial crisis and unless major decisions are taken I am afraid we are in for a big trouble,” said renowned economist Dr Hafiz Pasha.
He called for drastically cutting unnecessary imports and increasing exports to improve the current account deficit, which is going out of control.
“It saddens me a lot to see that no efforts are being made to manage our precarious financial affairs that are turning serious, especially because of unceasing external loans,” said the former finance minister, advising authorities to take notice of the situation before it is too late.
The government’s external borrowing has crossed $35 billion in the last five years, which also included $7 billion from commercial banks. The maturity of $3-4 billion of the $7 billion will come soon and how the government would return this loan with mark-up is another difficult question to answer.
Plans have reportedly been finalised to go for more commercial borrowing to pay off previous 80% of such foreign debt that had been secured through short-term borrowing.
The maturity of $1 billion bond payment is ready and the government cannot make this payment without borrowing more. In fact, new loans have to be negotiated to pay off old loans. All this is happening because of living beyond means.
Real foreign exchange reserves have gone down to $11.8 billion, of which if $5.2 billion of swap funding including from Chinese commercial banks is removed, real reserves stand at $4.8 billion. Such swaps were also arranged in the 1990s during the PPP government when independent power producers (IPPs) were building their power plants in the country and the central bank was left with $11 billion in reserves.
Later, in 1996 the interim government took over and found that $10 billion had been used or misused and the State Bank of Pakistan was left with just $1 billion and when international sanctions were imposed, the PML-N government decided to freeze foreign currency accounts.
Is Pakistan heading towards that situation?
The sad part of the situation is that the government does not seem to be bothered about the balance of payments crisis that is deepening with the passage of every day.
April is being seen as an important month in terms of approaching the International Monetary Fund (IMF) for a new bailout package without which international financial institutions (IFIs), foreign banks and global investment companies are unlikely to oblige Pakistan.
IMF officials have reportedly put extremely harsh conditions for any funding. The World Bank and the Asian Development Bank (ADB) have already suspended Pakistan’s annual assistance and in fact have linked their support with the IMF nod.
Now the word has it that after Paris meeting that has put Pakistan on a grey list from June this year and the US declaring couple of organisations terrorists, the Trump administration is using its influence in the Bretton Woods institutions to avoid bailing out Pakistan unless Islamabad succumbs to the pressure, stops alleged support to the Taliban and Haqqani network and helps them sit on the table for a negotiated settlement of the Afghan war.
Like Obama, Trump, despite declaring to wind up the war in Afghanistan, was forced to listen to the Pentagon and CIA to continue fighting there for an indefinite period.
Ever since the IMF’s post-monitoring report appeared last month, declaring Pakistan’s net foreign reserves going into $724 million negative, international lenders are hesitant to offer any assistance to Pakistan. They are in fact looking towards the IMF which is listening to the US State Department to desist from offering any bailout package.
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Now, when the government is completing its five-year term, it is leaving behind an economic mess that will have to be first encountered by the interim setup and later by the elected government.
Will the new government be able to deliver in the presence of multi-dimensional economic and financial challenges? These challenges primarily include fiscal and current account deficits, rise in public and external debts and the issues arising out of the unworkable 18th Constitutional Amendment and the 7th NFC Award that offered huge resources to the provinces which had capacity problems due to which they are wasting enormous resources.
Going forward, the new government will have to overhaul the entire taxation structure to manage new resource mobilisation without which the present system cannot deliver. There is also a dire need to bring rich agriculturists into the tax net besides increasing the number of taxpayers close to two million, out of whom just less than 1.2 million filed their income tax returns last year.
Likewise, how to get rid of the total debt amounting to over Rs25 trillion is another serious issue that the new government will have to deal with. But most important issue is how to tackle the current balance of payments problem which does not seem to be handled by any government unless something out of the box is thought and implemented.
The writer is the recipient of four national APNS awards and four international awards for journalism