Chasing IMF-fuelled growth

AT PENPOINT

The budget just presented was a crucial one, being the third of the PTI government, and thus presumably the first that would reflect some of the benefits of the steps it had taken since coming to office. It was also the first budget prepared with a view to elections: not only would it have in mind the possibility of an early general election, but it would contain the measures which would mature into the election, if the Assembly ran for its full tenure. It was also the first budget of the new Finance Minister Shaukat Tarin, who presented it even though he has still not got a seat in either House. In the background was the IMF, and the need to placate it. The fact that the negotiations for the next IMF tranche are to take place now, indicates that the talk of prior IMF approval of the budget is exaggerated. It will now have seen what has been implemented, and what remains for implementation. Negotiation will now take place over further measures.

The Budget Speech is supposed to be a statement by the Finance Minister of the government’s priorities and intentions for the coming year. Therefore, like a party manifesto, it is supposed to be a piece of political finance journalism. It is relatively easier, as it does not even have to pretend to have any sort of objectivity. The Budget Speech is delivered to the National Assembly, and will receive the greatest attention.

It was perhaps because of various constraints that no bold step, no sweeping measure, was announced, and such as is beloved of the PTI. The absence of such measures indicated both the sobering effect on Imran Khan of ruling. It also shows the professional sobriety inculcated by a lifetime’s banking of the current Finance Minister. One of the major restraints on budget-making was the continuing of the covid-19 pandemic, which was subsiding again to levels previously seen before the third wave.

One of the most interesting questions was how desperate the government was. Another coincidence of timing was that the Financial Action Task Force was scheduled to take a decision on whether to take Pakistan off the grey list it has been for some time now. The IMF has linked the continuance of its Extended Fund Facility to Pakistan’s being taken off the grey list. The input from the government is that the country is out of the woods, which will probably lead to disappointment when the likelier result, retention on the grey list, with directions to achieve compliance with remaining benchmarks, emerges from the impending FATF plenary.

It is not simply a matter of terror financing. The FATF vote is crucial to the US withdrawal from Afghanistan, because of the US need for bases from Pakistan, which Pakistan is not willing to give.

This budget might mark the death-knell of the corruption thesis; that the corrupt governments of the past skewed economic decisions so badly that the economy was adversely affected. The third year of honest, indeed righteous government has not brought any of the recoveries that were promised from the container. There has been no recovery to support the budget.

However, Tarin has already said that there is a need for the IMF to relax some of its targets. In short, Pakistan will not give the bases without a quid pro quo. Such bases are required by the USA to maintain the command of the air it achieved about 20 years ago. There is nothing the resistance, whether the Taliban or Al-Qaeda, fears more than US airpower, which can use drones to deliver payloads. That means that the USA can bomb the opposition with impunity. This is especially the case because the Taliban lack any anti-aircraft capability whatsoever.

The drones have one flaw. They need a base to be flown from, because there is a physical limit to piloting a drone. Even if the drones are piloted via satellite link from a secure location in the USA, the drones themselves need to be as near the target as possible. In short, they need to be stored on bases nearby. The USA can avoid getting a Pakistani, or even Central Asian, base by having warships from which drones can take off up station of the Pakistani coast.

That is a jerry-rigged solution, with the probability that the solution would be prohibitively expensive, the main argument against using one of the Central Asian Republics, which might presumably be more willing than Pakistan to provide the USA access. It should not be forgotten that when Pakistan protested against US helicopter gunships shooting up Pakistani forces, Pakistan refused overflight rights. The USA fell back on the Central Asian Network, as planned, but that proved expensive. Pakistan is not just convenient, but also cheap.

The establishment could be only too willing to comply, but it faces two difficulties. The first is that the PTI built up itself as the anti-US crusader, something that no one else was willing to be. Prime Minister Imran Khan earned the nickname ‘Taliban Khan’ partially because of his vocal opposition to drone strikes. Another reason for that nickname, his campaign to highlight the plight of Dr Afia Siddiqui, might indicate how he would act. In government, the PTI has not upped the government’s efforts for her release or return. However, it could be an issue that would fall into the lap of the PML (N).

The PML(N) government did manage to stop drone strikes against targets in Pakistan, though it took only ineffectual action on Dr Siddiqui. Imran has extolled U-turns. A U-turn on US bases can be expected, along with the plea that they actually enhance national sovereignty by keeping open the financial markets.

However, the real problem is China. As it is gearing up against the USA, it will not like Pakistan to take steps which will place it in the US camp. Increased military cooperation in particular will not be welcomed in Beijing. Since Afghanistan’s peace is more of interest to China than the USA, which only wants no resurgence of Al-Qaeda or Al-Qaeda-like organization, it might not be pleased at any US air superiority established in the region, which might be applied to the South China Sea. It almost seems that the choice the establishment wanted to avoid, between the USA and China, is upon it.

The budget has not yet begun to address the problem of debt. Spending levels must be defended. Development spending is the first bathing that finance bureaucrats try to cut when revenue targets are not met, even though it can be argued that that is the only pro-growth spending a government can make. Tarin must defend the development spending if he is to deliver anywhere the growth his PM needs. And a one-time starburst will not be enough. That growth must be repeated over the two succeeding financial years, so that when Imran faces the electorate, he does so having brought growth.

This budget might mark the death-knell of the corruption thesis; that the corrupt governments of the past skewed economic decisions so badly that the economy was adversely affected. The third year of honest, indeed righteous government has not brought any of the recoveries that were promised from the container. There has been no recovery to support the budget.