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PM’s relief pacakage in perspective

Huzaima Bukhari, Dr. Ikramul Haq & Abdul Rauf Shakoori

“It is better to offer no excuse than a bad one” — George Washington

Prime Minister of Pakistan, Imran Khan’s address to the nation on February 28, 2022, was nothing but another repeat telecast of his previous speeches. Since assuming power in August 2018, the Prime Minister (PM) has been consistently accusing previous governments of all the issues currently faced by the country. The ruling coalitition government of Pakistan Tahreek-i-Insaf (PTI) has proved its inability beyond any doubt of properly diagnosing the country’s major economic woes, what to speak of applying the correct remedies to fix them. The incompetence, demonstrated by PTI government, is unprecedented. It cannot be camouflaged with a policy blame game. The incumbant government has failed to acknowledge that most of the key members of the federal cabinet hail from the previous regimes having tarck record of failures. The most notable examples of this irony include, amongst others, the ministries of finance/revenue and foreign affairs.

In his address, the PM admitted that inflation during the five year (2013-18) rule of Pakistan Muslim League (Nawaz) was in the range of around 5%. The comparison chart, presented by PM, clearly showed that since 2018 inflation has risen significantly. According to Monthly Review on Price Indices (January 2022) by Pakistan Bureau of Statistics, inflation reached the alarming level of 13%. Undoubtedly, public pressure has been incraesing due to failures on economic front and rising inflation. The popularity of Imran Khan declining among the masses due to these factors as eveident from subsequent election results, ranging from national assembly to local bodies. Major allies of the PTI government have also recently expressed their reluctance to carry the baggage of incompetence and failures on different fronts, especially as the next general elections are fast approaching.

In the above backdrop, the PM announced some measures to offset the impact of inflation that include reduction of Rs. 10 per liter in prices of petroleum products, reduction of Rs. 5 per unit in electercity bills, besides promising to keep these unchanged till the next budget. He also announced tax incentives for certain class of persons/areas. In the perspective of challenges faced by Pakistan on domestic and external fronts as well as assurances given to the International Monetary Fund (IMF), these measures/moves, according to many experts, are more of populist nature than based on prudent economic/fiscal principles. These steps, many in the right direction, would have have been highly appreciated, if coupled with withdrawing tax concessions of billions of rupees available to the rich and mighty to fund concessions/subsidies. Pragmatic approach is not visible in the so-called relief/incentive package to boost the economy through long-term sustainable economic growth and offering new avenues of generating equitable revenues and drastic cut in wasteful and non-developmental expenditures to reduce the burgeoning fiscal deficit as suggested in Budget FY 22 and taxation, Business Recorder, May 28, 20.

Reckless borrowing by PTI Government is apparent from the data issued by the State Bank of Pakistan in Pakistan’s Debt and Liabilities-Summary (June 2020 to December 2021). Total domestic debt/liabilities as on June 30, 2018 were Rs. 29.879 trillion, which increased to Rs. 51.724 trillion as on December 31, 2021. Similarly, total  external debt reached the alarming level of US$ 130.6 billion as on December 31, 2021 from US$ 95.2 billion  as on June 30, 2018. The Premier, while offering various incentives, should have explained the terms and conditions agreed with IMF, highlighted in its staff report, regarding electricity and energy. With circular debt as on December 2021 reaching Rs. 2476 billion, IMF showed its concerns on subsidies offered. It is noted with concern that electricity theft has been increasing alarmingly. According to media reports, electricity theft in Khyber Pakhtunkhwa alone has touched Rs. 5.57 billion at the close of 2021, where PTI is in power since 2013.

Reduction in electricity prices by Rs. 5 per unit is a good step. However, no efforts have been made till today to counter electercity theft and undertake fundamental structural reforms in the energy sector. Pakistan needs to shift towards renewable souces like solar and wind, but unjustified sales tax of 17% was imposed with effect from January 15, 2022 on solar panels etc, highlighted in Repercussions of ‘mini-budget’, Business Recorder, January 28, 2022. It is yet not clear how this relief of Rs. 5 per unit will be extended across different consumption categories. However, IMF has been stressing for aligning power tariffs with cost recovery levels, for which regular implementation of tariff adjustments is being done—the government is repeatedly revising energy prices under the name of tariff adjustments or fuel price adjustments.

The PTI government has still not devised a strategy to effectively check the accumulation of power sector arrears and to arrest wastage of resources. There has been significant increase of Rs. 1328 billion in circular debt during the last 40 months of PTI government. In the face of such a critical position and rising geopolitical tensions, mere slashing of electricity prices, without measuring its impact and lack of resources to fund susbsidies, can have further negative impact on the deteriorated currency value—our rupee has lost more than 50 percenr of its worth since this government took power.

Pakistan is badly affected by global price hike. The current Ukraine-Russia conflict is going to make it worse. In the face of deteriorating investment clime, when foreign direct investment is susbstantially decreased and the existing businesses are struggling to survive, Federal Board of Revenue (FBR), instead of broadening tax base, is imposing oppressive taxes and increasing burden on existing taxpayers, to meet the ehnaced target fixed by IMF in utter disregard of the rational tax model presented in Towards Flat, Low-rate, Broad and Predictable Taxes (PRIME Institute, December 2020), Tax Reforms in Pakistan: Historic & Critical Review (PIDE, Islamabad) and in articles Overcoming fragmented tax system, Business Recorder, October 19, 2018 and Tax model for prosperity, Business Recorder, December 17, 2021.

Contrary to suggestions made in The POL bomb, Business Recorder, April 5, 2019, the PTI government agreed with IMF to enhance petroleum levy (PL) to its maximum level. The Federal Mister for Finance & Revenue, Shaukat Tarin, confirmed the commitment with IMF to gradually increase PL in gasoline and diesel by Rs. 4 per liter/per month until its maximum limit of Rs. 30 under the Petroleum Products (Petroleum Levy) Ordinance, 1961.

In addition to borrowing from IMF, the government has also been relying on other creditors to meet its requirements on the external front. It secured US$ 3 billion deposit, deferred oil facility from Saudi Arabia and took credit facilities from China. Moreover, G-20 Debt Service Suspension Initiative (DSSI) was extended by a third-round until December 2021 that helped the government to manage short-term financing requirements.

Unforunately, till today the present government has failed to devise a growth strategy to meet the economic challenges faced by the country. The projected GDP growth of 4% for the current year is not enough to bring any positive change in the lives of the people. The PTI government has already exhausted over three years of its terms but could not introduce structural reforms to generate employment, increase growth, and strengthen financial position of the country.

The manifesto of PTI promised to strengthen FBR’s autonomy by reducing the Ministry of Finance’s role and ensuring structural changes in tax system by simplifying the tax assessment, rules and shifting towards direct taxation. The growth strategy in the manifesto was based on reviving manufacturing and facilitating the small and medium enterprises (SMEs). However, all these sectors have been badly impacted by policies of the PTI government. Chapter II of the PTI’s manifesto deals with the transformation of the governance through accountability by providing full autonomy to National Accountability Bureau (NAB) and other institutions to pursue all major corruption scandals regardless of political affiliation. But, the PTI government failed to honour its commitments. NAB is repeatedly criticised by the apex court as a body, manipulated for political engineering.

Since 2018, Imran Khan’s focus remained on strengthening of power base by using different agencies against political opponents instead of undertaking structural reforms to promote long-term, sustainable growth—the country is thus facing serious economic challenges, current account deficit of nearly US$ 20 billion and all time high circular debt. In 2022, for our economic needs, we are heavily dependent either on IMF loans or bailout packages from the Kingdom of Saudi Arabia and China. The PM, knowing well that shift of non-compliance of terms agreed with IMF can land Pakistan into new financial challenges, decided to announce an incentive/relief package without doing basic homework of meeting the revenue gap and narrowing fiscal defict. The government now needs to ensure that this political move at a time when the opposition is planning to table a motion of no confidence against the Prime Minister, will not cost the nation heavily in the future.  


Huzaima Bukhari & Dr. Ikramul Haq, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE). Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance’. They have recently coauthored a book, Pakistan Tackling FATF: Challenges and Solutions

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