As days pass by, the disappointment in the Budget 2020-21 keeps on mounting! COVID-19 aside (by now a patent excuse on a global scale for any mismanagement), so what really just happened here in Pakistan over the last two years that has resulted in such a bleak economic picture? After all, the PTI manifesto touched upon all the right notes in claiming removal of conflict of interest and rent seeking, building inclusive as well as non-extractive institutions, resurrecting SOEs, merit or competence-based teams, etc. Perhaps to answer this properly, one has to take a slight peep back in the economic events that followed the last general elections. What we see is that either due to lack of experience (of economic governance per se on a national scale) or owing to a hybrid model where the PTI leadership itself felt obliged to others for the very status it assumed, the process started on the wrong foot—too many cooks spoil the broth! In a total disconnect with reality and with each other as a team, a perception of harsh accountability in addition to witch hunting was unleashed that sent a scare through the spine of the markets.

The young unbridled cadre of newly elects unleashed a barrage of irresponsible and senseless statements that though had little or no connection with real ground realities, still instead compounded the problems for the economic managers. Economic activity came to a halt and investors went into their shells. Adding insult to injury, almost everyone was branded a thief and an environment was developed where a perception was created that taxes from here on would be extracted like nobody’s business—a notion that needless to say carried numerous negative connotations for the economy. First, Pakistanis in any case pay more than their fair share of taxes (the writer has written numerous articles explaining this and giving regional comparisons) and second, even assuming that they don’t, the thing is that creating a negative perception or panic in the economy can never be good for business, in fact, it becomes counterproductive.

To make matters worse, amidst this uncertainty Pakistan entered into a poorly thought through IMF program, which in turn unleashed a series of subsequent blunders that saw compromised human resource choices in key positions, setting of unrealistic revenue targets thereby adding to the existing fears of tax extortion and of course the home grown economic jolts: Abruptly slowing down the economy (too much too fast); stoking inflation; and last but not least, jacking up interest rates to unworkable levels—knee jerk actions or economic jolts tend to cause more long term damage than simple poor policy choices, as they tend to suck away confidence from the markets, which once bruised can take years to heal (in Economic History we often talk about lost decades). Regrettably, the economic management blunders continue to the day and naturally keep on compounding the economic problems the country currently faces.

As a result, perhaps the biggest issue the government faces today is of ‘credibility’. Regardless of the quality of initiative, in almost everything it does the trust of the people in its ability to deliver seems to be dwindling. Be it be the fight against the corona pandemic, addressing conflict of interest and rent seeking, bringing the right reforms, objectively conducting accountability, combating corruption, defending the Pak Rupee, prudent setting of oil prices, tackling the bleeding state owned enterprises, rationalising its own size and expenses, making the right policy choices or selecting competent merit-based human resource, nothing inspires confidence. As pointed out above, the underlying problem being that economic management per se seems to be in complete disarray.

An absence of economic leadership, lack of coordination amongst various ministries, no clear-cut vision or direction to take the economy forward and the sheer inability to proactively deal with looming economic issues seems to rule the roost—a game of shadows on who really is in-charge. One day—against sane advice from all quarters—petrol prices are reduced to unrealistic levels and thereafter, within days the step is reversed with equally pointless corrections that ironically does not add much to the government’s coffers. Sales Tax rates are stubbornly maintained at levels that hurts economic activity, especially exports, which ironically are termed as a priority by the government; support packages to help companies ride the COVID-19 waive are touted, but not followed up with specifics to avail them at a time when needed the most; on what basis exactly has an October 2020 demand recovery been envisioned; the list goes on …

Finally, the very fact that the numbers in this budget simply do not add up exacerbates this trust deficit. Start scrutinising things closely and one is at a loss on how to explain a tax-free budget with an enhanced revenue target of Rs4.95 trillion; nose-diving exports owing to a global shutdown in consumption (specifically in our markets, EU & USA), yet a target of $23 billion in exports—country’s exports in May 2020 were only about $1.2 billion; A positive projected GDP growth rate when even in 2019-20, the net GDP growth turned out to in effect be negative (alarmingly reflecting in increased unemployment & poverty figures); An allocation of nearly Rs3 trillion in debt servicing despite government’s commitment to reduce debt and despite now a reduced interest rate by the SBP—a 5 percent decrease roughly translates into Rs1.50 trillion in fiscal space for the government on the prevailing debt trend; Privatisation receipts that seem mere cosmetic at a time when SOE losses seem to have climbed up unprecedently (the data is so murky that it is almost impossible to accurately ascertain what the losses actually are); transparent disclosure on contingent liabilities; and last but not least, given the ever increasing global competition owing to reduced international demand what allocations, if any, are made for ensuring domestic manufacturing’s competitiveness vis-à-vis energy inputs. In the corporate world, whenever we sit down to evaluate any budget, what we always keep in mind is that a budget can only be as good as the performance of the management in the previous year and its vision going forward in the coming year. Sadly, when looking at this 2020-21 Budget prepared by our present economic team, both the past year’s performance and the future leave a lot to be desired—given the rapidly deteriorating economic situation, something will need to change and that too quickly!