Caretaker govt and economy

There was a tremendous rush for the position of the caretaker prime minister despite the horrendous economic situation Pakistan is in. This signifies an intriguing mindset prevalent in Pakistan that is taken in by wayward ambition that is completely devoid of rationality.

It is quite evident that any interim setup will, in all probability, be unable to deliver virtually anything. The complexities of political and economic scenario of the country is such that successive dispensations including both civil democratic, military dictatorship and hybrid regimes, have failed to get to grips with the economic decline and get hold of the elusive economic prosperity.

In such a situation it is simply beyond the capacity of even the most brilliant interim arrangement to deliver desired results and it would be futile to expect much from it despite tremendous hype it has arrived with.

The only additional prop this interim government has is the civil-military run Special Investment Facilitation Council (SIFC) that is rather a promising aspect of the national economic spectre though it is feared that most of the national assets may be made the base for acquiring further loans, a bulk of which may be utilised for expenditure incurred on matters related to the defence sector. The interim PM Anwaar ul Haq Kakar is therefore reported to emphasise SIFC further bringing to fore the expectations of the military establishment. This step is aimed at consolidating national assets so that they could convey a cumulative position of the collateral the country may be able to offer while conducting financial parleys.

This is an approach that has been resorted to rather late as most countries, particularly the Gulf states, already operate sovereign funds with quite obvious advantages. It is reported in this context that the military establishment had advised the previous government to set up the council for attracting the foreign investment from the Gulf countries.The SIFC has already approved a list of 28 projects and also took a decision to dilute Pakistan and Barrick Gold’s shareholdings in Reko Diq project in favour of Saudi Arabia.

The interim PM has also expressed his intention to adhere to the International Monetary Fund (IMF) programme that is reported to be on track. He inquired whether there was a need to further raise the petroleum levy to Rs.60 per litre on petrol and high-speed diesel but was advised to retain the tax at its current level of Rs.55 per litre. Under the deal, Pakistan has committed to the IMF that it would increase the maximum petroleum levy to Rs.60 per litre with following the path of increases to reach an average rate over of Rs.55 per litre.

Currently however the view is that as the prices were already going up due to currency depreciation and the global prices, the levy at this stage should not be further increased. He however gave go ahead to increase the prices of petrol and diesel with effect, an action that is rated as quite insensitive though the caretakers are not really concerned about the havoc their economic actions may cause to the people.

It must have been an unwelcome development for the interim setup that the rupee fell by Rs.3.01 against the dollar during interbank trade and closed near Rs.292 per dollar. The devaluation is going to hurt the people due to its impact in the shape of increase in prices of electricity, petroleum products and imported goods.

Under the IMF deal, the gap between the interbank and the open market exchange rate should not be more than 1.25%. It is also reported that the IMF desires the Pakistani government must spend Rs.1.03 trillion on health and education -a condition that was also in the previous programme but was not met. It was however mentioned that the interim PM emphasised upon meeting the IMF condition on increasing the health and education spending by the four provinces and the federal government.

He was of the view that instead of implementing this condition as part of the IMF deal, the authorities should increase spending in the country’s own interest.

Another issue immediately confronting the caretakers are the IMF’s conditions with regard to the increase in electricity prices, approval of the circular debt management plan and lowering the stock of the circular debt. Kakar was told about the possible political fallout of the upcoming increase in rates of electricity on account of quarterly tariff adjustment as it will be a major increase after the recent hike of over Rs.8 per unit on account of annual base tariff that was done under the IMF condition. Despite a massive increase in electricity prices, the circular debt jumped to Rs.2.31 trillion by end of last fiscal year due to surge in line losses, theft and under recovery of bills.

The first review of the programme is due in November 2023 and its completion will unlock the second tranche of $712 million. The IMF’s conditions regarding withdrawal of import restrictions and having a market-determined exchange rate are also to be met.

Pakistan is expecting commitments under new loans from the Asian Development Bank, World Bank and other financial institutions. The central bank’s reserves currently stand at $8.1 billion but credit to the private sector was negative Rs.173 billion by the end of July.

On top of it all is the country’s budget deficit has surged to Rs.6.52 trillion, equivalent to 7.7 per cent of the Gross Domestic Product (GDP) during the fiscal year 2022-23. For the first time in the last two decades, external financing for budgetary purposes has remained negative, amounting to Rs.0.679 trillion in the last fiscal year. This shift is primarily attributed to the previous regime’s failure to revitalise the IMF’s Extended Fund Facility (EFF) programme. Consequently, external loans for the budget turned into a deficit. Domestic financing of the budget deficit reached Rs.7.2 trillion while external financing stayed negative at Rs.0.679 trillion, resulting in an overall budget deficit financed to the extent of Rs.6.52 trillion. The primary deficit amounted to Rs.0.69 trillion or 0.8 per cent of GDP in the last fiscal year. This is in contrast to the government’s commitment to achieving a surplus in the previous fiscal year under the IMF’s EFF arrangement.

The total revenues reached Rs.9.6 trillion including tax revenues of Rs.7.8 trillion and non-tax revenues of Rs.1.81 trillion. Total expenditures amounted to Rs.16.15 trillion with a significant portion allocated to debt servicing—Rs.5.8 trillion—for both domestic and foreign loans. Notably, a statistical discrepancy of Rs.0.38 trillion was observed in the last fiscal year. While the federal-level statistical discrepancy stood at Rs.0.49 trillion, the provinces generated a surplus of Rs.0.9 trillion, reducing the overall discrepancy to Rs.0.38 trillion. Among non-tax revenues, the government garnered Rs.1.8 trillion with the federal government contributing Rs.1.64 trillion.

This includes petroleum development levy of Rs.0.579 trillion, SBP profit of Rs.0.371 trillion, PTA profit of Rs.0.84 trillion, dividends of Rs.0.68 trillion, royalties on oil and gas of Rs.0.120 trillion, and other sources. Regarding expenditures, pension payments amounted to Rs.0.66 trillion, civil government operations to Rs.0.634 trillion, subsidies to Rs.1.08 trillion and grants to others to Rs.0.98 trillion.