Midway budget
FINANCE minister Ishaq Dar is preparing to give his budget speech next week at exactly the midway point in his government’s tenure. This will be his third budget speech, and after this there are only two more, meaning it is precisely at the middle point in his government’s term.
This is also the point when previous government’s budget speeches have turned into political moments. The last government’s midway budget was in 2010, and was presented by Hafeez Shaikh only weeks after he got the post. He had barely enough time to find his feet at the time, adjusting himself to a brand new reality created by the seventh NFC award, and an IMF relationship beginning to show signs of serious strain.
His maiden budget speech was all politics and hardly any economics. He started by thanking the president, who was also his party’s leader, for the 18th Amendment. He promised a “fresh approach to economic management”, and talked at length about the global economic crisis and the challenges it posed for his government, at least some of which he said were due to “policy weaknesses”.
Now that the PML-N government has approached its midpoint, we all wait to hear what their narrative is going to be.
“The fragility in our fiscal and balance of payments situation was exposed” as a result of the global economic crisis. Then he listed the various challenges his government faced: historic inflation, plummeting growth, depleting reserves forcing a depreciation of the exchange rate.
Then he talked of how this budget will be different from all those that came before, giving three principal reasons. First, he said this budget is more transparent than all the others that came before it. Second, it is realistic in the targets that it contains. Of course, gross revenues fell short of their target by Rs175 billion anyway, representing a downward revision of just over 7pc. Third, he pointed out that this was the first budget since the NFC award, and it would test the government’s ability to manage the new landscape upon which the federation would have to operate from then on.
This last point was accurate, although towards the end of his tenure Mr Shaikh had taken to criticising the NFC award for having tied his hands and making it very difficult for him to manage the country’s finances. “The provincial government of Punjab has more fiscal space to play with than I do!” he complained to me once.
My point in digging this up is to show that by the time most governments reach their midpoint mark, they start running out of themes for their budget speeches, and feel politically embattled enough that they want to use the platform of the budget speech to get their narrative out.
For the PPP government, the narrative was that they were the custodians of democracy in Pakistan, the party that gave the country its first constitution, the party that fought against dictatorship in the 1980s.
They also righted the structure of the Constitution through the 18th Amendment, and corrected its imbalance by devolving resources down to the provinces through the seventh NFC award. Their politics was based on building consensus, their vision was empowering the provinces, and their game was a fundamentally democratic one.
That’s the narrative Mr Shaikh produced in his midpoint budget speech.
Now that the PML-N government has approached its own midpoint, we all wait to hear what their narrative is going to be. Thus far, they have presented themselves as the custodians of economic growth and progressive reform.
Going by what is being reported thus far, I’m expecting Mr Dar to tell us that he inherited a bankrupt economy and stabilised it, and would have done a far better job had the dharnas not come along and wrecked some of his plans. There’ll be the customary invocation of natural events, like a drought, that damaged growth somewhat. Then the celebration of the credit rating upgrades and the return of foreign investor confidence, as evidenced in the country’s successful bond flotations.
But all budgets end up looking the same after a few months. Revenue targets are revised downward, documentation measures are rolled back, protections for foreign currency deposit holders are reinstated. There may be the arrival of a large new revenue head, the petroleum development levy in 2009, which was struck down by the Supreme Court, or the gas development surcharge in 2014, also struck down by the Supreme Court, until it was passed as a bill by the National Assembly in 2015. Both were revenues from the oil and gas supply chain, the most elastic of our revenue lines.
By the time a government reaches its midpoint, it has discovered the limits of what it can do, and the electorate has also discovered the limits of what it can deliver. This government sought to tackle the power crisis as an urgency from day one, and promised to eradicate the circular debt. Today, it is forced to backtrack on both promises, and all our eggs are landing up in the Chinese basket where the power crisis is concerned.
Mr Dar should try and depart from normal practice and build his budget speech around economic proposals alone. It’s hard to do given that the budget speech is the highest rated television event of the entire year, and as such the biggest platform from where the government can send out its message to the country.
But it would be more reassuring if that message minimised the political and built maximally on the economic. Use the moment to explain the underlying structural problems that have kept us going round and round in the same circles for more than three decades now. Then keep the promises realistic, emphasising those that can be reliably delivered upon, and keep returning to them in the course of the fiscal year.
We’ll soon find out how this government sees itself in its middle age. Let us hope it is not angry and defensive, but proactive and forward looking instead.
The writer is a member of staff.
Twitter: @khurramhusain
Published in Dawn, May 28th, 2015
On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play