May 312015

More than any other document, the federal budget reflects a government’s true priorities. Fantasy and political rhetoric cease to matter when crafting the Money Bill. The budget is where the rubber of political philosophy meets the road of governance. While it has not yet been officially announced, there have been enough previews from the Nawaz Administration’s second budget to come away with at least a sense of the government’s strategy: the prime minister is clearly very concerned about two things — resolving the energy crisis before the 2018 elections and meeting his commitments to Beijing for the China-Pakistan Economic Corridor (CPEC). All else, for the moment, appears to have been put on the back burner.

For energy, the seriousness of Prime Minister Nawaz Sharif’s intent appears to be getting stronger the closer we get to August 2018. He has approved keeping electricity tariffs level in a bid to reduce the government’s energy subsidy bill as well as to find a way to pay for the losses incurred by the state-owned portion of the national grid due to theft and inefficiency. The government appears to have taken advantage of lower oil prices and is betting on the fact that people do not notice when their prices fail to go down, but are more likely to kick up a fuss when they go up. For this piece of shrewd political manoeuvering, we applaud the administration. But we still do have some concerns on this matter. Reducing the subsidy bill is a worthy enough cause, but doing so by getting honest, bill-paying consumers to pay more for the cost of theft seems blatantly unfair. The government needs to do far more to crack down on electricity theft before it can justify keeping tariffs at their old high levels.

On the CPEC, it is clear that the government wants to keep its word to China and complete all of the necessary projects on time. Given the enormous potential benefits of the CPEC, we find ourselves in agreement on the overall approach. However, where we find ourselves in disagreement is the fact that the government appears to have made severe cuts to several other development priorities. We understand that the money would have to come from somewhere, but the Nawaz Administration seems to have gone out of its way to ensure that the majority of the projects cut were being implemented in provinces other than Punjab, its political home base. Even though the major projects in the smaller provinces will continue to be funded, we do believe this sort of biased approach in allocating budget cuts is unjustified.

The one big area that we continue to find the most disappointing, however, is taxation. It is becoming increasingly obvious that when it comes to raising government revenues, Finance Minister Ishaq Dar has no views of his own and is relying on the kind of adhoc, back-of-the-napkin calculations that officials at the Federal Board of Revenue come up with when pressed by the cabinet to produce ideas on how to raise taxes. None of the ideas — and we emphasise that there are absolutely no good ideas on the taxation front — would do anything to actually increase the number of taxpayers in the country. Cutting back on giveaways in the form of Statutory Regulatory Orders is a somewhat passable idea, until one remembers the fact that it is simply a moderate fix on what was one of the biggest self-inflicted wounds in the entire government machinery.

Cutting unnecessary expenses is a good idea, but Pakistan’s fiscal problem will not be fixed until the government gets serious about cracking down on the culture of tax evasion that pervades Pakistani society. Until the Nawaz Administration does so, it will not be able to get Pakistan towards a true state of macroeconomic stability and the country will simply lurch from crisis to crisis, with occasional spurts of good luck. This is no way to run an economy that serves the sixth largest nation in the world.

Published in The Express Tribune, June 1st,  2015.

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