Belt tightening after a bad year.

Byline: Khaleeq Kiani

This has been a bad year financially and economically. Almost all the major economic indicators have moved south as uncertainty prevailed along the last 10 months of the current fiscal year that badly affected investor and public confidence. Public finances appeared completely out of hand.

It was generally on the basis of this summary that Prime Minister's newly inducted adviser on finance Dr Hafeez Shaikh sounded cabinet members last week a rare caution about what is to come.

In a candid in-house discussion, he affirmed a general public perception that 'indecision had deteriorated the economic situation' since the October-December period.

His assessment was that situation had not been as bad in October but started to deteriorate by December 2018. Indecision towards major economic matters further aggravated the state of affairs over the following months in the absence of major policy decisions.

He also warned the cabinet that the IMF bailout he had agreed to will not be a traditional programme this time. All non-productive expenditures will need to be curtailed significantly and everyone will have to share the sacrifice and be efficient in operations.

In absolute terms, the country's nine-month fiscal deficit amounted to Rs1.922tr, which is the highest third-quarter deficit in history

Like the IMF, Dr Shaikh also pushed for a 'front-loaded programme'. This means most of the difficult reform measures should be taken upfront rather than lagged out over a period of time as back-loaded reform measures lose steam and are difficult to implement, causing embarrassment in the international community.

On top of that, hints were also dropped to phase out large subsidies and exemptions including an end to zero-rated regime to select export sectors. Therefore, the policy decisions should start flowing immediately to show seriousness to the world and be owned by the entire cabinet to succeed no ifs and buts.

Dr Shaikh has himself seen for decades the growing bleeding in public sector entities (PSEs). Thus, he told the cabinet meeting that budgetary injections to such PSEs would have to be stopped forthwith in line with PTI's original plans and all such entities should be parked in the Sarmaya Pakistan Company.

He advocated minimising general subsidies, limiting them to the poorest of the poor in a targeted manner and criticised the existing culture where maximum benefits of subsidies are enjoyed by the rich in the name of the poor.


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