No Time for a Honeymoon
Amir ZiaMonday, June 17, 2013
One can understand why Nawaz Sharif seldom smiles and mostly wears a sombre-look on his face during his official and public engagements ever since he has donned the cap of prime minister on June 5. Yes, the sheer realisation of the multitude of mega challenges the country confronts today should be enough to wipe a smile off from the face of any ‘lion-heart’ prime minister, expected to perform quick miracles by desperate masses and* an impatient media.***
A small taste of what awaits the newly-elected prime minister and his team in the days to come is reflected in the scepticism and criticism with which various interest groups, economic experts and the mainstream media received the proposed 2013-14 (July-June) budget.
Popular narrative, by and large, has given a thumbs down to the proposed budget through which the government aims to stabilize the country’s battered economy and attempts to trigger growth that has remained pegged at below three percent on an average during the last five years of the PPP-led rule.
The man on the street is worried and bitter about the inflationary impact of the one percent increase in the general sales tax, the slight tweaking of the tax slabs on the higher side and the absence of what opinion makers call any ‘relief’ for the masses. The economic czars and wizards are doubtful about the government’s capacity to achieve its proposed revenue collection target of Rs 3,420 billion – 21 percent higher from the revised figures of Rs 2,837 billion in the current financial year – and meeting the fiscal deficit target of 6.3 percent in 2013-14, given the government’s plans to allocate Rs 712 billion under the Public Sector Development Program and ‘other development expenditure’ in an attempt to trigger growth.
These are not the only concerns being hotly debated as the proposed budget is dissected and scrutinized by various interest groups and experts. Proposals such as the elimination of duty on hybrid vehicles up to 1200 cc, soft loans for the youth and the controversial laptop scheme are also in the line of fire – along with issues the budget speech failed to address. According to some experts, top omissions include steps needed to expand direct taxation as the government continues to rely heavily on the current oppressive indirect taxes that hurt the lower and middle classes more than the higher-income group. The imposition of the much-desired tax on agricultural income has also been conveniently ignored because under the constitution only provinces are entitled to levy it. The energy sector’s tariff reforms also fail to figure on the radar of the policymakers despite the fact that it consumes the bulk of subsidies.
The aggressive and unkind criticism that greeted the proposed budget at the very start of the PML-N government’s third innings in power shows the mood of the moment, which remains ruthless in judgement. Welcome to the restless, troubled and teeming Pakistan of 2013 where there is no honeymoon period for the new government. The expectations of the people are as enormous as the challenges that make the task of economic revival a lot more difficult. This is a nightmarish situation for any government.
***Agreed that it is a far from ideal budget, but given the limited space of financial manoeuvrability and the paucity of time in which the new government came up with the budget proposals, its economic team has done a fairly decent job …
The policymakers are attempting to achieve economic stability and growth in tandem, which is what the country requires. But a number of economic experts insist that with the **balance of payment crisis **staring Pakistan in its face because of its heavy foreign debt repayments and huge trade deficit, the government should first aim for economic stabilization.
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But the idea is self-defeating since without boosting economic activity and growth achieving the goal of stability would remain elusive.
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The private sector needs incentives, confidence and encouragement to play its role in this effort, which cannot be done until the government takes a lead by launching some big and medium-seized development and infrastructure projects. The calculated risk of boosting the PSDP and other development spending in the proposed budget remains vital to kick-start economic activity.
For resource mobilization, the budget proposals do not contain any radical steps. Rather the government has, more or less, cautiously opted for the existing framework promising efficient and corruption-free revenue collection, increase in the general sales tax to 17 percent from 16 percent, a nominal increase in the taxes of the high-income salaried class, and imposition of various small taxes on select sectors – from hospitality services to builders.
For sceptics such steps won’t be sufficient to meet the government’s ambitious target of 21 percent higher revenue collection in the next financial year. However, any radical and bold steps for raising the revenues, including the imposition of value added tax (VAT) which has been vehemently opposed in the past by traders and shopkeepers – one of the key support base of the PML-N – would have certainly triggered a much stronger backlash. At this critical juncture, the government can hardly afford a new front. Therefore, the cautious approach seems sensible. However, the federal government should encourage and push provinces to tax the agriculture income – no matter how nominal in the first phase – to at least get the ball rolling in the right direction.
There are also concerns on whether the government will be able to meet its fiscal deficit target of 6.3 percent in the next financial year, given its planned higher spending and unprecedented revenue collection target of Rs 3,420 billion. Will all the proposed austerity measures and cuts in the government’s running administrative expenditure really make an impact in the final calculations of keeping the fiscal deficit – described as the mother of all troubles for an economy – in the targeted range? The outcome of the government’s effort would obviously bank on how it performs on the resource mobilization and spending fronts.
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There are no quick fixes for Pakistan’s ailing economy**, which requires much tougher measures and more difficult decisions to get back on the high growth trajectory. Sceptics and critics should give time to the government and allow its plan to work before aiming and firing their guns at its economic team.
It would be unfair to start shouting ‘success’ or ‘failure’ in the opening spell of Prime Minister Nawaz Sharif’s third innings. The man on the street, opinion makers, the opposition and the ‘independent’ economic experts must allow his government to settle in and start the process of rebuilding.
There is some room for optimism. The first good news is that the Sharif government – whether we agree or disagree with its budget proposals – has an economic vision and a team that means business. This makes it different from the previous government that hardly had any agenda of its own and is remembered for its misrule and economic mismanagement. Second, one should expect efficient decision-making and a hands-on approach from the Sharif government in handling the country’s tricky economic affairs. Third, many business people and foreign and local investors see this government as a sentiment-changer – which is also a good omen. For, it is often the sentiment that sets the course of economic growth and gives it momentum even before things really start happening on the ground.
It is time to wish good luck to Sharif and his team. Let’s hope that the new government rises up to the challenge and proves itself worthy of the task. Pakistan desperately needs a success story for a change.
http://www.thenews.com.pk/Todays-News-9-184181-No-time-for-a-honeymoon
