The federal cabinet took a major decision on July 9 to trim the size of the government.

There is an imperative need for the federal government to reduce the huge and widening imbalance between its revenues and expenditure. The number of federal government departments and autonomous institutions, now at 441, is proposed to be significantly reduced to 324.

A high-powered committee, with the establishment secretary as chairman and other federal secretaries as members, has been set up to implement the recommendations of the Task Force on Institutional and Government Reforms headed by Adviser to the Prime Minister on Austerity and Reforms Dr Ishrat Husain. The cabinet’s approval of the task force report follows the 2019-20 budget, which is bullish on tax revenue mobilisation but bearish on the austerity programme.

One cannot rule out strong resistance to austerity and institutional reforms from the bureaucracy

Despite the proposed cut in current expenditures and a 43pc increase in targeted revenues over the actual provisional collection last year, the fiscal deficit is projected to further widen this year. The actual size of the fiscal deficit will depend on the volume of tax revenue collected in a sluggish economy and the reduction in government spending in the face of surging inflation.

Dr Hafiz Pasha points out that the fiscal deficit, projected by the International Monetary Fund (IMF) at 7.1 per cent of GDP for 2018-19, is climbing to 8pc and might reach 8.4pc by the time fiscal accounts are finalised. Independent financial analysts see the inflation rate exceeding 13pc stipulated for this year.

The task force has recommended that 43 state-owned enterprises (SOEs) should be handed over to the newly formed Sarmaya Pakistan for privatisation. Such experiments in other countries, including Malaysia, have not been an unqualified success. The government is likely to go slow on privatisation as no sale proceeds have been posted in the current year’s budget. Even the IMF has advised that only seven small units may be privatised in the short run without setting any specific target date.

That probably means there is very little appetite for businesses to buy SOEs. Their privatisation is also linked to the new draft SOEs’ law as agreed with the IMF. The sell-off process has to be made transparent and fair.

The fate of the rest of 200 SOEs is not known. A list of the entities that are to be put under the hammer, retained by the state or simply liquidated is being prepared. The government wants to retain the worst-performing ‘strategic assets,’ which are run with taxpayers’ money.

Though the government says the promotion of private investment is a priority, the Board of Investment (BOI) is still struggling with the investment strategy for 2020-24. The BOI has taken 10 long months to produce the first draft, now stated to be ready for approval of the board. The BOI is still mulling over laws concerning special economic zones (SEZs) to make them business-friendly. It has initiated the process for bringing harmony in federal and provincial laws related to the business sector, which Imran Khan wants to be completed in a month.

It is not known whether reforms will also tackle the balance-sheet approach of the finance ministry that tends to stifle public-sector development spending, which stimulates private investment and spurs economic growth. Earlier, this issue was also reported to be on the government’s reform agenda.

Yet another move is to devolve the departments retained by the federation, though they were supposed to be transferred to the provinces after the 18th Amendment.

In all, 14 entities are to be handed over to the provinces, Gilgit-Baltistan and Islamabad city’s jurisdiction. However, no move has been made to transfer the collection of taxes and levies, as provided in the Constitution, from the questionable jurisdiction of the Federal Board of Revenue (FBR) to the federating units.

As things stand now, two consecutive five-year National Finance Commission (NFC) awards — eighth and ninth — will be missed by the end of 2020. The last award, which was the seventh one, was announced in 2010. The government has also agreed with the IMF to approach the provinces for creating a joint fund with the federation for tackling external shocks to the economy. The vertical changes in resource distribution under the NFC award proposed by the Fund are not binding, says Finance Adviser Dr Hafeez Shaikh.

Of the remaining entities targeted for institutional reforms, eight departments will be dissolved, 35 will be merged with others and 17 will be restructured. Going by the past experience, one cannot rule out strong resistance to austerity/institutional reforms both from the bureaucracy and in the legislative process. That includes the legislation agreed by Islamabad with the IMF. The government does not have a majority in the Senate or even in a joint meeting of the two houses of parliament.

Pakistan has committed to amending (a) the State Bank of Pakistan (SBP) Act to strengthen its autonomy, governance and mandate (b) National Electric Power Regulatory Authority (Nepra) Act to ensure full automaticity of the quarterly tariff adjustments (c) Anti-Money Laundering Act (d) and privatisation laws. All these legislative proposals are to be placed before parliament by the end of the current calendar year. The IMF has advised the government to get the Senate approval for the Fund’s programme.

The report of the National Commission for Government Reforms (NCGR) — set up about eight years ago — ‘found no traction’ during the previous governments. Hence, NCGR Chairman Dr Ishrat Husain had recently suggested “selective interventions in certain key institutions” to gradually allow a change in the status quo. “The blowback and resistance are likely to be much more subdued...” The new strategy and approach are not clear.

Will the PTI government succeed where its predecessors feared to tread?

jawaidbokhari2016@gnail.com

Published in Dawn, The Business and Finance Weekly, July 22nd, 2019