PTI government’s dilemma

By Javid Husain

The PTI government came into power last year, amidst accusations of political engineering and electoral rigging allegedly perpetrated by renegade elements belonging to the deep state, on the basis of a narrative which was deeply flawed and extremely misleading. Having failed in its earlier attempt through the prolonged dharna of 2014 to overthrow the PML(N) government on the basis of charges of the rigging of the 2013 elections, which were found to be incorrect by a judicial commission headed by the then Chief Justice of Pakistan, PTI jumped at the opportunity offered by the Panama Papers leaks in 2016 to destabilise the government of the day on charges of corruption. The PTI narrative, allegedly promoted in the media by the renegade elements of the establishment, was simple but appealing to the public at large: all Pakistan’s economic ills were because of the rampant corruption on the part of the political elite of the PML(N) and PPP, and if PTI was elected into power, this corruption would end ushering in an era of unprecedented prosperity in the country.

The narrative did not recognise the complexity of the problems confronting the country and the need for adequate preparations to resolve them through wide-ranging reforms. Slogans based on this simplistic view were fed to the people of Pakistan many of whom actually believed in what they were told by PTI, its handlers and their media machine. The greater tragedy was that many of the PTI leaders and members became a victim of their own misleading propaganda and started believing it as the gospel truth. Little wonder, therefore, that the PTI government came into power totally unprepared for the gigantic task of reforming the system and the policies for the progress of the country and the welfare of its people.

When the PTI government took over, the economy was faced with a number of serious problems: high levels of fiscal and current account deficits, low GDP growth rate (5.8% in 2017-18 according to earlier estimates, now revised downward to 5.2%), low national saving and investment rates, widespread poverty, high levels of unemployment and public debt, and inadequate education and health facilities. The people at large were made to believe that the real cause of these problems was the corruption during the previous two democratically elected governments and that once the corruption ended, these problems would be magically resolved. In fact, these problems called for extensive reform of the system and government policies. The PTI government now is finding it difficult to reconcile the imperative of reforms with the promises of immediate economic benefits that its propaganda had earlier promised.

In fact, the common man has been burdened with increasing inflation, high energy bills, and slowing down of the economy leading to growing unemployment.

The PTI spokesmen are in the habit of telling all and sundry that they inherited an empty treasury from the previous PML(N) government. This point of view reflects a medieval understanding of the functioning of the government and gross ignorance of the rules and practices of modern public finance on the part of the PTI representatives. At best, perhaps it is a reference to the high level of public debt that the PTI government had to face when it came into power. According to the Pakistan government statistics, the public debt, which was estimated to be Rs.14.3 trillion at the end of 30 June, 2013, increased to Rs.24.2 trillion by end June, 2018 and to Rs.24.7 trillion by August, 2018 when the PTI government took over the reins of government, that is, the public debt increased roughly at the average rate of Rs.2 trillion per annum during the rule of the preceding PML(N) government.

The latest State Bank statistics indicate that the public debt increased to Rs.26.6 trillion by the end of December, 2018, that is, it increased by Rs.2.42 trillion in just six months from July-December, 2018 and by about Rs.1.9 trillion in a little over 4 months from August to December, 2018. At this rate, the public debt would increase by more than Rs.4 trillion during 2018-19 under the present PTI government as against the average rate of Rs.2 trillion per annum under the preceding PML(N) government! The only reasonable conclusion that one can draw from the foregoing is that the PTI narrative was and is far removed from reality. Corruption was not and is not the main cause for the rapid increase in public debt otherwise either there would have been a decline in public debt under the PTI government or one would have to conclude reluctantly that the PTI government is even more corrupt than the previous PML(N) government.

The position is more or less similar as far as the fiscal deficit is concerned. According to the figures presented by the federal government at the first meeting of the ninth National Finance Commission, the fiscal deficit would increase from Rs.2.24 trillion in 2017-18 to Rs.2.39 trillion during the current financial year under the PTI government. The current expenditure would increase from Rs.4.3 trillion in 2017-18 to Rs.4.8 trillion in 2018-19. Again, one may ask, where is the dividend of a corruption free government in running the affairs of the government? On top of that, the public development expenditure, which is an important agent of developmental activities in the country, would be reduced from Rs.1 trillion in 2017-18 to Rs.575 billion in 2018-19 as against the amount of Rs.1.2 trillion earmarked for the purpose in the budget for 2018-19 presented by the preceding PML(N) government. So whereas the non-productive current expenditure would continue to increase, there would be a sharp decline in the developmental budget in 2018-19, thus, slowing down economic growth from 5.2% in 2017-18 to less than 4% in 2018-19 leading to a sharp increase in the unemployment rate.

Unfortunately, there is little understanding on the part of the policy makers of the PTI government that the fundamental causes for Pakistan’s dismal economic performance are its low national savings and tax revenues as percentages of GDP. Our national saving rate was about 11.4% in 2017-18 as against 30% in the case of India. The difference between national investment and savings translates into trade deficit. If we want to reduce our current account deficit while maintaining a high GDP growth rate, we must raise the national saving rate to about 30%. Similarly the only practical way to lower fiscal deficit is to raise the tax-to-GDP ratio from the current 12% to over 25%. At present, the expenditure on debt servicing and defence alone exceeds the net revenues of the federal government forcing it to borrow for meeting the remaining current expenditure on civil administration and development expenditure. This is the real reason for the rapid increase in the public debt. The need of the hour is for adequate policy measures for increasing tax revenues and containing the current expenditure.

In the absence of the required increase in national savings and tax revenues, the country will remain mired in a slow growth and high current account and fiscal deficits syndrome, stumbling from one economic crisis into another. Increased foreign investment in the country will certainly help in accelerating its economic growth. But it would be a mistake to place our reliance on this factor alone instead of efforts to increase rapidly our tax revenues and national savings. These macro-economic changes must be combined with increased allocation of resources to education, especially science and technology, and health to put Pakistan on the high GDP growth rate trajectory.

The writer is an author, a retired ambassador and the president of the Lahore Council for World Affairs.