THE annual budget is not only a statement of revenue, expenditure, budget deficit and public borrowing, but also a powerful tool for the efficient allocation and use of resources, an equitable distribution of income and a signal to the private sector. on the direction of the economy.
The crux of the budget includes speeches by federal and provincial finance ministers, which set out the underlying policy framework.
In these uncertain times when the current government’s tenure is limited, the external economic environment is pernicious, political polarization is at its peak and international financial markets are not looking favorably on Pakistan, the importance of this year’s budget takes on a critical importance. This would signal to the international financial community (institutions, credit rating agencies, bond markets and foreign investors), trading partners, domestic investors, businesses and market participants that Pakistan’s economic management is on track. Market confidence must be restored through the policies outlined in the budget.
The first and main task is to conclude the agreement with the IMF within the next two months. This would not only free up funds from the World Bank, AfDB, IDB, Saudis, Chinese, etc. and to ease the pressure on the exchange rate, but also to remove the uncertainty as to the satisfaction of the huge external financing needs. Rating agencies and fund managers would be reassured about the financial discipline that would be implemented. The market-determined exchange rate, moving in both directions, should remain in place. The SBP should only intervene to contain volatility and not to defend a predetermined exchange rate target. To meet IMF board preconditions, oil and diesel prices would need to be passed on to consumers, as general subsidies do not conserve use and would widen the fiscal deficit, leading to additional borrowing and indebtedness. increasing. Grants, if any, for a transitional or limited period should be channeled through the BISP.
Secondly, ongoing efforts for automation, computerization, digitization of RBF, integration of third-party databases with RBF databases, use of data analytics should be intensified to broaden the tax net and minimize the interaction between taxpayers and tax collectors. Taxes on laptops, computers, IT products and devices, telecommunications services should be reduced, so that the benefits of the digital economy are widely disseminated. Provincial taxes, including the GST on services, contribute only 1% of GDP to the total tax pool. Revised rates and better collection of farm income tax, abiana and revaluation of land tax and cadastral surveys can easily double the revenue of provincial and local governments.
Third, subsidies and conditional cash transfers to the poor should continue to be targeted through the Benazir Income Support Program. It is the finest example of cross-party consensus that has had the positive effect of helping poor segments of the population who needed it. The National Socio-Economic Register (NSER) has been updated and should be used for targeted subsidies for electricity, fertilizer, food, etc.
Fourth, due to currency adjustment, export financing and regionally competitive energy prices, exports are growing at a rate of 25% this year. These incentives should not be changed or disrupted as the price structure quoted by our exporters is based on these calculations. It is only through ever-increasing export earnings that we will be able to contain our trade imbalances.
Fifth, ongoing PSDP and ADP projects, including those under public-private partnerships, should receive the necessary allocations so that they are completed on time without any cost overruns and the benefits start flowing to the community. ‘economy. Particular attention should be given to the Agriculture Transformation Plan in coordination with the provinces.
Sixth, a comprehensive report identifying 85 public commercial enterprises (PEs) for retention, restructuring, liquidation, privatization of assets, capital market investments, corporatization, management contracts with the private sector was been approved by the cabinet and must be implemented quickly, in particular those of the PIA, the steel mills, the railways, the NHA, the five DISCOs, which account for 89% of the cumulative losses of the public companies.
Seventh, the energy sector is doing a lot of damage to the economy. The circular debt restructuring plan for the electricity sector is expected to focus on unfunded subsidies, agricultural tube wells, T&D losses, recoveries, renegotiated agreements with IPPs and the transfer of management of five DISCO loss-making to private management. Indigenous fuels such as hydro, Thar coal, solar, wind and nuclear should be given higher priority in the order of merit. Low-yielding factories should be shut down. Two private sector RLNG plants in Port Qasim are expected to be commissioned soon as they have no government guaranteed offtake. The weighted average gas bill cost would make gas pricing more realistic by removing distortions and discrimination under the current system. The adjustment of the electric fuel must be carried out in time by Nepra without any intervention from the Ministry of Energy. The Competitive Commercial Bilateral Contracts Mechanism (CTBCM) is stalled due to disagreements between the regulator and the ministry over the quantum of transmission charges. Solving this problem would introduce competition into the energy market and help consumers set realistic prices and ease the government’s tax burden.
Eighth, the Pakistan Regulatory Modernization Initiative (PMRI) and the National Single Window (NSW) have reached an advanced stage in their ultimate goal of single gateways, which would make a huge difference for private business and international trade in terms of time, hassle and searching for paper. , illicit payments and charges. These initiatives would reduce unnecessary rules and regulations, NOCs and permits, etc.
Finally, the current open and competitive merit-based selection process for CEOs and managing directors of public sector companies and institutions should remain in place. Highly skilled and experienced people of integrity would strengthen the capacity of economic governance institutions and overcome the implementation constraints that have plagued the Pakistani economy.
It is clear that the reluctance to raise utility prices or to pass on the increase in world prices of petroleum products to consumers or to resize public companies would have a favorable political impact but negative economic consequences. These policies are by no means going to endear the ruling parties to the general public in the immediate future. Therefore, the political leaders of the federal and provincial governments must give their full support to the financial managers to go through this arduous and difficult process of restoring economic stability.
In doing so, they must realize that their political survival depends to a large extent on reviving economic growth and job creation, macroeconomic stabilization, including controlling inflation and redistribution to the poor, and these results can only be achieved if politically unpopular and difficult decisions are made today and not postponed or delayed.