The government’s last budget
When Finance Minister Hafeez Shaikh stands up to deliver the budget speech on June 1st, in a sense he will be making history.
No other civilian government has delivered five consecutive budget speeches in parliament before.
But this historic moment will afford no opportunity for grandstanding of any sort. If early reports about the speech are true, it seems Mr Shaikh will be in a bit of a hurry to deliver his lines and quickly resume his seat amidst a thunderous uproar from the opposition.
A natural question hangs over this government’s last and final budget announcement: what have they done with this historic opportunity to rule the country uninterrupted for five consecutive years?
The unhappy inheritance that befell this government should not be trivialised. Vast imbalances in the external accounts were matched by even larger imbalances in the fiscal equation as the infant democracy struggled to find its feet in the aftermath of a tragic assassination and a chaotic election.
In an important article written in this newspaper, former special adviser to the finance minister Sakib Sherani estimated that the newly elected government’s addition to the total debt stock grew “substantially” as it booked large “unbudgeted and unrecognised spending” during the closing years of General Musharraf’s regime, and then again from the large devaluation of the rupee that came in late2008.
The mess that was left behind by the general’s government was no small affair, and absorbing its costs was the first big blow this government had to suffer, taking the fall for somebody else’s failure.
Another big element of the economic story of this government’s tenure is the complicated politics it has had to manage.
“It has taken a tremendous amount of political skill to manage the coalition. Normally a government without a two thirds majority rarely survives more than two years” in this country, says Dr Hafiz Pasha, who has advised this government in revenue matters and serves on the Economic Advisory Council.
He goes on to list the major achievements of this government, citing specifically the first consensus National Finance Commission (NFC) award after almost two decades, and the 18th Amendment that clarified the structure of the federation and showed the future direction of decentralisation.
“But unfortunately all their achievements are in the political sphere; in the economic sphere they always fail. Some of the failure grows out of the complex politics, like when the RGST got thrown out because coalition didn’t stand by it. But major reforms have not been undertaken, there is drift in the management of public sector enterprises, the whole system has been left to rot through neglect and corruption.”
In various pre-budget forums, finance minister Hafeez Shaikh cites the NFC award as one of the main reasons he is left “fiscally helpless”, since most government resources are now transferred to the provinces, leaving behind very little for the federal government.
But in a blistering rebuttal of this line, former finance minister Shaukat Tarin, under whose leadership the NFC award was negotiated, says this is a cover-up for the government’s own failure to mobilise resources and bring about tax reform.
“The whole NFC award was premised on increasing the tax to GDP ratio. You were supposed to increase this ratio by one percentage point every year and then devolve many ministries to the provinces.
Where is the work on those fronts? It is the failure to undertake reforms that has starved the government of resources, and if they don’t mobilise resources very quickly, the situation is going to worsen.”
This is the third major element in the economic story of this government — governance. Yes the inheritance was bitter. Yes the politics have been tough. But the failure to reform, to govern, is a failure that belongs squarely to the government in power.
Nowhere is this failure more evident than in the power sector. None other than the State Bank, an institution with no stakes in the political process, has given us the metric by which to measure this failure, pointing out in its annual report that the power deficit has more than doubled in the four years of this government’s rule.
Tax reform is the other vital plank that presents a story of abject failure. “Deficit reduction will be hard to achieve,” says Dr Ehtesham Ahmed, who briefly served as an adviser on tax reforms to Mr Shaikh before falling out, “without a serious attempt to address the structural flaws on the revenue side. There is no political appetite for this in either of the two main parties”.
Each of these three elements of the government’s economic story — the inheritance, the politics, and governance — will intersect in the budget announcement on the 1st. The politics will be on display with the thundering chants of “Go Gilani Go”, while the inheritance we will now talk about will be the one this government will be leaving behind for those who will close this fiscal year next July. And the optimists amongst us will continue their wait for governance and reform to show up.