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Budgeting Bankruptcy

by Khaled Ahmed
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Adviser to Prime Minister Imran Khan on Finance, Revenue and Economic Affairs Abdul Hafeez Shaikh. Farooq Naeem—AFP

Can the PTI-led government survive the changes required for Pakistan to achieve economic stability?

The Pakistan Tehreeke-Insafled government presented in Parliament on June 11 the 2019-20 federal budget amid great disorder. Treasury benches exchanged unprintable abuse with lawmakers of the Pakistan Peoples Party and Pakistan Muslim League (Nawaz). To make matters worse for the PTI, the opposition, led by PMLN’s Shahbaz Sharif—“produced” from jail for the budget session—kept referring to the PTI government as “selected” rather than “elected,” eventually forcing the Speaker of the National Assembly to ban the word’s usage, expunging all references from the House record.

Unsurprisingly, this atmosphere was not conducive to any meaningful discussion on the budget. The opposition, instead, kept pointing to the hardships the budget was inevitably placing upon the common man. It also, rather disingenuously, dubbed the government’s “submission” to the International Monetary Fund (IMF) as a “betrayal” of the nation and surrender to Pakistan’s enemies. Irony dripped copiously from the PMLN and PPP’s outbursts, as during their respective tenures in power, both had resorted to IMF loans “in extremis” because of Pakistan’s perennial financial misgovernance.

Debt, debt and more debt

The budget passed by the National Assembly on June 28 has an outlay of Rs. 7.02 trillion for fiscal 2019-20. Troubled by the economy’s persistent malaise, the PTI government has claimed it would opt for “self-sacrifice” rather than putting the squeeze on the common man. This isn’t entirely untrue; under the budget, ministers’ salaries will be cut by 10 percent. In another positive step, the government will cut Rs. 40 billion in subsidies on gas and electricity. But even as the budget was being passed, the bête noir of debt servicing—a neverending cycle in which Pakistan notoriously borrows more money to pay off old loans—stood at $95 billion. These cuts, while laudable, are unlikely to make much of a dent in a state with only $8 billion in its foreign exchange reserve—sufficient for only two months—despite the many “repayable” handouts taken by the current government from Saudi Arabia, the United Arab Emirates, Qatar and China.

Overall, since coming into power, the PTI government has taken on an additional $11.3 billion in loans, compared to the $8.6 billion it inherited from the PMLN regime. In the same period, loans from multilateral donors have dropped from $28.1 billion to $27.6 billion. Public external debt has surged to $78.4 billion from $75.3 billion, while long-term foreign debt now stands at $64.5 billion. “Friendly” countries, such as Saudi Arabia and the U.A.E., have pledged $12 billion to help ease pressures on the balance of payments. Similarly, the Saudi-backed Islamic Development Bank is set to lend $4.5 billion for oil. Since November 2018, Saudi Arabia and the U.A.E. have already extended $4 billion as part of their aid package, providing much-needed inflows for the State Bank of Pakistan’s foreign exchange reserves.

Even though the opposition, crippled by cases of corruption and pre-trial arrests, vociferously rejected the budget, it lacked the numbers to do much to roll it back. Media reports highlighting the common man’s plight and the inevitable hikes in living expenses that this budget envisages were also unable to make much headway. The opposition’s decision to repeatedly refer to the usual tropes of the “infamy” of submitting to the IMF while offering a “helping hand” through a “Charter of Economy” also fell on deaf ears. Part of the problem, in this scenario, might have been the poor choice of nomenclature.

The “Charter of Economy” evoked the Charter of Democracy signed between the PPP and PMLN in 2006 to bury the hatchet and take on the military establishment jointly. Today, the core supporters of the PTI—heeding the fiery denunciations of Prime Minister Imran Khan—see the earlier Charter as a betrayal of the people. They have no desire to witness a repeat through any similar “charters.”

Same old, same old

Despite the opposition’s tirades, there was really nothing surprising about the PTI’s first annual budget. Prior to its introduction and passage, all economists had predicted that Pakistan would have to go through a very tough “correction” period. Self-professed “savior” Imran Khan had also repeatedly warned that tough times were ahead—even while he reassured the nation that he would be the one to steer the country to prosperity after he was done punishing the “Nawaz-Zardari money-laundering combine.” But while economists and Khan agreed on the tough times ahead, they differed in that the experts saw nothing but trouble in the prime minister’s denunciatory rhetoric.

Fortunately, the stage set for terminal chaos found a measure of salvation in the words of one Gen. Qamar Javed Bajwa. As the budget debate continued in Islamabad, the Chief of Army Staff spoke like a reformed oracle at a national seminar, appropriately titled ‘Pakistan’s Economy: Challenges and Way Forward. Organized by the Institute of Strategic Studies, Research and Analysis at the National Defense University in Islamabad, he said: “Countries cannot develop individually, it is the region which develops. For our region to develop we need to have greater regional connectivity among all neighbors.”

Not only did this statement offer a message of support for the PTI government but also an unexpected—and somewhat risky—about-turn of the national defense strategy, as the general clearly adopted a conciliatory if not confessional-apologetic line on ties with India.

Prime Minister Imran Khan had earlier made it public that the military was voluntarily taking a cut in its budget to do its part for the country’s economic recovery. This was a bit overblown as while it was true the military was foregoing any increase to its funding, it was not taking any cut. This was later confirmed by the Stockholm-based International Peace Research Institute, which revealed that Pakistan was currently the 20th biggest military spender in the world with an expenditure of $11.4 billion; or 4 percent of the country’s gross domestic product—the highest it has been since 2004.

Guiding hand

Yet the Bajwa Doctrine, if it can be called that, may prove critical in buttressing the state of Pakistan’s shaky structure. Not only will Islamabad benefit by changing its national defense posture—note the “regional connectivity” mentioned by Gen. Bajwa—but bring it close to the “transformational” remedy hidden in the somewhat controversial China-Pakistan Economic Corridor. It is quite clear that China wants Pakistan to change its textbook hate-India doctrine, formulated and administered by the Pakistan Army, at times in opposition to elected governments desiring change.

It is no secret that Pakistan needs to look inward and change if it wants to survive. The writ of the state remains weak in almost 60 percent of the country if you include the chaos of Karachi, which “generates about 25 percent of the national GDP and 65 percent of the national revenue, including federal and provincial taxes, customs and surcharges,” together with interior Sindh where the feudal landlord rules supreme, restive Balochistan, the troubled tribal areas and parts of the “katcha” (riverine bed) of the Indus river in South Punjab.

The PTI, for its part, also seems to be facing up to its history of flawed economic policies. Despite vowing to go after anyone who availed previous tax amnesty schemes, Prime Minister Khan has taken to the airwaves multiple times to urge Pakistanis to avail his government’s version of the same. Unfortunately, his new position might be too little, too late. Thus far, the PTI has collected 1,272 declarations with paid-up tax amount of Rs. 936 million in the pipeline. This is peanuts. Pakistan currently collects $22 billion in taxes; the potential exists for $44 billion.

Will Pakistan survive the dark underside of the “correctional” budget inflicting unprecedented suffering on the man in the street? Perhaps. The PTI, with its Army support, is currently the only party that could face off the coming grief. Under Gen. Bajwa, it looks like the country is finally ready to change its defense doctrine to survive as an economy. It is now up to the political parties to find a modus vivendi if the state they serve is to enter a new, brighter and hopefully more secure phase of development. If the PTI and the Army can accomplish this, the peace of the coming era will be worth the pain of the budget’s more stringent terms.

From our July 6 – 27, 2019 issue

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1 comment

S. Ahmad July 29, 2019 - 7:43 pm

The problem created by the militablishment is that you can’t eat the cake and have it too.. The hard realities have to be faced the hard way. The war budget needs to be trimmed in order to bring about a measure of relief to the neglected civil population!

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