As Dr Abdul Hafeez Shaikh starts official business as federal minister for finance, he has fewer powers than he enjoyed until last week as adviser to the prime minister on finance and revenue.

The continuation of Dr Shaikh as head of the economic team was important to ensure stability in the markets and maintain existing engagements with the International Monetary Fund (IMF) that had kept its $6 billion Extended Fund Facility (EFF) virtually suspended for almost a year and yet provided $1.4bn emergency support following the Covid-19 outbreak.

He has not been given the portfolio of the Revenue Division though. This is not the first time: Prime Minister Imran Khan has continued to gradually take various divisions away from him. The finance minister’s portfolio had until Asad Umar’s unceremonious exit from the cabinet in April 2019 included four divisions: finance, revenue, statistics and economic affairs.

The portfolio of revenue was taken away from Dr Shaikh more than a year ago when the prime minister appointed Hammad Azhar as revenue minister. Dr Shaikh is reported to have lodged a strong protest because it meant the finance minister was left with only finances (expenditure) and not revenue (cash stream). Mr Azhar was then moved into the role of minister for economic affairs, again a division taken away from Dr Shaikh. The Statistics Division had already been shifted to the Ministry of Planning and Development.

The portfolio of revenue was taken away from Dr Shaikh more than a year ago. The move left him with the expenditure stream only

Following an order of the Islamabad High Court (IHC) that barred Mr Shaikh from heading the cabinet committee on privatisation and all advisers and special assistants of the prime minister from heading committees or taking policy decisions, the prime minister appointed Mr Shaikh as federal minister for finance under Clause 9 of Article 91 of the Constitution that allows a non-member of parliament to be appointed as minister for a maximum of six months. If the prime minister so pleases, Dr Shaikh can be elected as senator in the Senate poll in March.

The notification issued by the Cabinet Division on Dec 11, however, once again left Mr Shaikh with only one division i.e. the Finance Division. An official said Dr Shaikh has been sworn in as federal minister and that was enough for now. He would be able to ‘recover’ the Revenue Division if he faced any problem with SAPM on Revenue Dr Waqar Masood Khan who also had similar connections in the relevant quarters. As finance minister, Dr Shaikh would be empowered to head the National Finance Commission (NFC) as its chairman — a position he had to leave in July this year due to a separate decision by the IHC.

Under the rules of business, the Revenue Division has control over tax policy, tax administration, avoidance of double taxation agreements with other countries, administration of customs and excise group, and income tax group. The prosecution and defence of legal proceedings concerning the Revenue Division will also be conducted by the Revenue Division and the Federal Board of Revenue (FBR).

As finance minister, Dr Shaikh has to take up this week two major expenditure items on the agenda of the Economic Coordination Committee (ECC) of the cabinet. These include a way forward on the rationalisation of over Rs5 trillion worth of hidden and apparent subsidies and financial solutions for Rs739bn Karachi Transformation Plan.

The federal cabinet had recently been informed that the overall stock of subsidies and liabilities was estimated to be Rs5.2tr — almost one-fourth of the domestic debt. These are in the shape of past investments, guarantees and uncovered loans. In addition, annual subsidies were close to Rs1.9tr or 4.5pc of GDP in the shape of fertilisers, electricity, gas, food items, grants, guarantees, single treasury account, cash transfers and national savings.

The lending agencies have been asking that authorities should limit unfunded subsidies and make them targeted based on two principles. These should support the poor and the vulnerable or be aimed at triggering higher economic growth and nothing else. It has been argued that the above subsidies have been hovering around 4 -4.5pc of GDP. Hence, a cut could reduce the otherwise high fiscal deficits that fluctuated around 5-9pc in recent years.

Internal workings have suggested the settlement of the circular debt, capacity payment savings, cross-subsidies and a targeted subsidy on the power tariff to the poor through the Ehsaas programme and provincial contributions to such subsidies could reduce the federal burden by about Rs300bn in first go.

The Karachi Transformation Plan was taken to the ECC early this month by the Ministry of Planning, Development and Special Initiatives, but was deferred for a detailed discussion. The planning ministry has proposed that the Supreme Court should be requested for the utilisation of Bahria Town penalty proceeds for projects adopted by the federal government for the transformation plan.

Bahria Town is reported to have deposited about Rs58bn to the apex court, including Rs52.6bn in principal instalments and Rs5.4bn in markup. The court had ordered Rs460bn compensation from the real estate developer on account of the cost of state land.

The finance ministry, on the other hand, has suggested the Planning Commission should also work out some alternate plan in case of the non-availability of Bahria Town compensation and advocated the diversion of Public Sector Development Programme (PSDP) funds through technical supplementary grants or public-private partnership (PPP).

The Planning Division has reported that the federal government had committed to undertake Rs739bn worth of Karachi projects through its agencies over the next three years and wanted to use three financing avenues — PSDP, including foreign funding, PPP and Supreme Court funds. The major projects under the programme include Greater Karachi Water Supply Project (K-IV), settlement of displaced persons in flats to ensure clearance of nullahs and rivers, Green Line BRT, Karachi Circular Railway and a railway line freight corridor from Karachi Port to Pipri.

Published in Dawn, The Business and Finance Weekly, December 14th, 2020