The budget has been out for a few weeks now and with each passing day, both the disappointment and frustration amongst all sectors of society are mounting. Perhaps the real problem, even more than the inflicted pain, is that of stolen hope. According to Gallup, more than 90% of Pakistanis surveyed across varying spectrums are looking for an exit strategy from Pakistan, which is not only disturbing but also rather sad. So, we are on board an IMF program yet again, but what does it matter to the ordinary people or struggling businesses; they neither borrowed nor spent these funds in the past nor will they be doing so in the future. And ironically, all this accumulated debt has done scant little to positively change the fortunes of an average Pakistani in any way! In an ongoing inflation saga – arguably the longest and the severest in the country’s history – that has drained peoples’ pockets like never before, this budget comes across not only as vision-less but also mindless to the extent of being extremely insensitive. The hypocrisy is glaring while the people in power or the governing classes are rewarding themselves regardless of performance benchmarks, everyone else is being asked to pay for the financial shenanigans they have been no part of. What we often forget is that the in essence the state has a contract with the people that demands their contribution in return for bettering their lives through good management and sound policies; Social Contracts, as we know to succeed need to be honoured by both sides! Quite frankly, the governmental end of this contract has been falling short in its commitments for a long time now and what is indeed troublingly is that one does not see any remorse either. This budget exposes this very weakness where there is not even an attempt by the policymakers to look inwards to address the underlying follies that led us to this impasse in the first place: unfunded state pensions that keep on swelling at the expense of the working class cum taxpayers; no real effort to outsource or partner with the private sector in the areas where government has consistently failed to deliver; a blatant disregard or refusal to reduce the size of the government, which instead has actually gone up in this budget; continuous crowding out of the private sector, thereby directing the capital to flow from efficient hands to inefficient hands; refusing to let go of state run entities despite very high financial costs and extremely poor delivery; yet again failing to undertake reforms, especially at the revenue collector’s end, which in fact should have been undertaken prior to imposing the barrage of draconian taxes and not the other way round, meaning the ever long story of missing reciprocity; a conscious failure in separating state funds from political hands; failure to improve ease of doing business; re-visiting trade and investment agreements – remember if domestic investors are shying away no genuine foreign investor will realistically come to invest (healthy FDI is an organic process and any forced S-to-S initiatives like the ones being taken now only lead to rent seeking and in luring undesirable investments); and the list goes on and on..

Well, one wonders if there is any vision to this budget at all, other than of course blindly following the IMF’s dictates in order to borrow from them the 24th time. Fair enough, as one can understand the borrowing choices available to us may not be many at this stage, however, what puzzles one is that in negotiating the terms or prerequisites why shoot oneself in the foot?

IMF is a financial institution and like every such entity, it wants to ensure that its lending will ultimately be recovered, however, by no account is it averse to any alternate or better policy proposals that aim at safeguarding the very economic activity that in real terms actually forms the principal collateral or safety in guaranteeing the successful recovery of its loan. It is in this context that some of the announcements are truly baffling. For example, over the last decade, Pakistan has been largely plagued by its external account woes and here we are announcing a new policy framework bound to adversely affect or rather destabilising the export sector of the country, which by the way holds the key to any kind of a meaningful economic recovery plan in the future - almost like a leaf out of John Perkin’s Economic Hitman! Compare ourselves to our competitors in South Asia and the Pakistani export sector is disadvantaged by way of labour rates cum efficiencies, interest rates, absence of zero-rating, unsustainably high utility rates, and now a full-blown taxation hike. One fails to see the method in this madness. Frankly, it is not so much the taxation that worries the taxpayers, because the rates can be incorporated in costs and inflation is not their but the government’s responsibility, but it is the sheer lack of fairness and transparency in the current system that haunts them. And for this reason, tax experts have been regularly advocating for a long time that the productive way of increasing the tax-to-GDP ratio for any country is not through coercion, but incentivisation. The reality is that given the prevalent corruption in Pakistan’s tax collection system across the board (and not just FBR) there exists a serious conflict of interest with the the self-enrichment aspirations of the tax collecting apparatus in instead adopting a prudent system that distances the taxpayer for the revenue collector. Also, till such time that the will to expand the base keeps on being held hostage to influence or street power, the system will keep on flogging the flogged donkey. Only a few weeks into the budget and we are back to the old ways of whosoever can take on the government by way of strikes, closure threats, etc. (retailers, petrol pump owners, doctors, and so on) get away at the expense of the honest and legitimate taxpayers (be they be individuals and/or businesses).

Trouble is that unless the government corrects its course, the future does not look bright and the rut is likely to exacerbate. The inaction on IPP agreements and the stubbornness to run power plants in the public arena at any cost is taking everything down with it. Just as an example, the state-owned power companies are so inefficient that even with a fuel procurement cost of merely Rs. 15/unit, they lose money despite selling @ Rs. 60/unit, whereas, in contrast, even after sourcing RLNG at a market-based cost of $13/mmbtu giving a fuel cost of between Rs 33-35/unit the private sector is able to produce @ Rs. 38-39/unit & on much smaller capacities. Although it may not be talked about much in the press these days, but the excessive footprint of the government is also putting the financial sector at grave risk. What if the government fails to pay back the principal (which it is perhaps doing by consistently re-borrowing) and the Banks refuse to re-roll the loan or what if the Banks are asked to take a massive haircut on their sovereign lending? In such a situation, given the over-dependence of these institutions on the government’s borrowings can lead to a run on the banks or a mere collapse. Not to say that this unhealthy love affair between the state and the commercial banks is leading to an imminent disaster: The latest figures released just a couple of weeks back put the government’s appetite for borrowing in 2024-25 at Rs. 7.70 trillion as against a lowly Rs. 124 billion of the private-sector; just a paltry 1.60% and a figure that should raise some immediate alarm bells.

Across the border, our larger neighbour has also released its 2024-25 budget which is being received very well by businesses, the public, and the investor as an immensely feel-good factor. More on this next week, IA, but the point is that we should not have to wait for a full year to find our ‘feel good factor’!

Dr Kamal Monnoo
The writer is an entrepreneur and economic analyst. Email: kamal.monnoo@gmail.com