Fi­nan­cial tsunami

The Pak Banker - - 4EDITORIAL - Dr Ash­faque H Khan

PO­LIT­I­CAL tsunami, as pop­u­larised by Im­ran Khan, is now well-known in Pak­istan. What is not known is ‘fi­nan­cial tsunami’, which has struck Pak­istani shores in the last two weeks. This tsunami will con­tinue to in­un­date the fi­nan­cial shores till March 16. The af­ter-ef­fects of ev­ery tsunami have al­ways been dev­as­tat­ing. What will be the af­ter ef­fects of fi­nan­cial tsunami? How can the care­taker regime min­imise the dev­as­ta­tion? How will the post-elec­tion government ad­dress them?

As I noted in my ar­ti­cle ‘Fi­nan­cial hara-kiri’ (March 5), fis­cal in­dis­ci­pline has been the hall­mark of this government. Never in the his­tory of this coun­try has the na­tion seen such a fis­cally ir­re­spon­si­ble government. Per­sis­tence of large fis­cal deficit reach­ing as high as 8.5 per­cent last year has more than dou­bled the coun­try’s pub­lic debt. Such ir­re­spon­si­ble be­hav­iour has to­tally dev­as­tated the econ­omy, the im­pact of which will con­tinue to haunt the hap­less mil­lions in the years to come.

What is the fi­nan­cial tsunami do­ing then? How is it dif­fer­ent from fi­nan­cial hara-kari? The an­swer is that it is the dif­fer­ence in speed at which both events can af­fect the econ­omy. While it took al­most five years for fi­nan­cial hara-kari to de­stroy a rel­a­tively sound econ­omy, it will take less than two weeks for a fi­nan­cial tsunami to cause sim­i­lar de­struc­tion.

In the last few days of its ten­ure, the present regime has un­der­taken highly con­tentious pol­icy de­ci­sions in­clud­ing con­tro­ver­sial ap­provals, fi­nan­cial sanc­tions, al­lo­ca­tions, ap­point­ments, etc, which will have far-reach­ing ad­verse im­pact on the econ­omy in gen­eral and coun­try’s fi­nances in par­tic­u­lar. Let me sum­marise a few for il­lus­tra- tive pur­poses.

First, the abo­li­tion of the con­di­tion of hav­ing a Na­tional Tax Num­ber (NTN) to pur­chase a new car is a bad de­ci­sion. This is con­trary to the rhetoric of broad­en­ing the tax base. This will en­cour­age the growth of un­doc­u­mented econ­omy and breed fur­ther cor­rup­tion. Sec­ond, the ap­proval of in­land freights sub­sidy for ex­port­ing sugar is tan­ta­mount to buy­ing dol­lars at more than the of­fi­cial ex­change rate. Third, pro­vid­ing elec­tric­ity to big agri­cul­tural land­lords at a flat rate will cost bil­lions to the na­tional ex­che­quer.

Fourth, the Rs100 bil­lion PIA bailout package based on a fic­ti­tious busi­ness plan is noth­ing but a fi­nan­cial tsunami. In my 11 year stint at the Min­istry of Fi­nance, I have seen many bailout pack­ages given to rot­ten PSEs based on their so-called busi­ness plans. They never worked and will not work. In the mean­time, the na­tional ex­che­quer will con­tinue to bleed.

Fifth, dealer mar­gin of the oil mar­ket­ing com­pa­nies has been in­creased to ben­e­fit them. Sixth, in a dis­crim­i­na­tory man­ner the salaries of the em­ploy­ees of the Ac­coun­tant Gen­eral Pak­istan Rev­enues (AGPR) and fed­eral sec­re­tariat have been in­creased. Other government de­part­ments, their at­tached bod­ies and pro­vin­cial gov­ern­ments will come un­der pres­sure to do the same for which no pro­vi­sions were made in the bud­get 2012-13.

Sev­enth, mas­sive re­lease of funds from the so-called devel­op­ment pro­grammes to ‘win’ votes is in full swing. The Plan­ning Com­mis­sion and its deputy chair­man are fully sup­port­ing the loot and plun­der. It will be dif­fi­cult to gauge the ex­tent of dam­age that th­ese de­ci­sions will cause to the bud­get. Per­haps the true pic­ture will not be known un­til sev­eral months af­ter the exit of the tsunami. While analysing the bud­get 2012-13 in greater depth, I pre­dicted that the year would see a bud­get deficit in the range of 8.0-8.5 per­cent of GDP. The re­cent de­vel­op­ments in­clud­ing the fi­nan­cial tsunami are ex­pected to defy even my cau­tious as­sess­ment. There are indi­ca­tions that bud­get deficit in the cur­rent fis­cal year may reach a level not seen be­fore in Pak­istan with se­vere macroe­co­nomic con­se­quences for the econ­omy.

What should the care­taker government do to min­imise the dev­as­ta­tion of a fi­nan­cial tsunami? First and fore­most, the coun­try will need a neu­tral and tech­ni­cally com­pe­tent care­taker government. Sec­ond, the fi­nance min­is­ter of the care­taker gov­ern-

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