Federal Finance Minister Hafeez Sheikh saying that the federal government needs to control expenses should not be dismissed as rabble-rousing oratory by the opposition, but viewed as an analysis by the head of the government’s own financial machinery, and not just a political head, but a technocratic head brought in for that very purpose. However, Dr Sheikh, who made this comment about his own Cabinet colleagues while on a visit to the Karachi Stock Exchange on Saturday, may well have been driven to make this statement by the predilection of the Cabinet members to use their positions to live luxuriously. It must not be forgotten that this is orthodox economics, when there is inflation in the country, virtually all a government can do is to rein in excess expenditure. Dr Sheikh said that the government had to cut expenditures to eliminate poverty. This is an extremely significant thing, to which the rest of the government must pay heed. However, by spouting the usual demand for an increase in the tax-to-GDP ratio, he showed that he was also subject to the World Bank propaganda which wants to tax Pakistanis despite their hard economic conditions, and then tax them a little more.
Apart from unburdening himself to the stockbrokers, Dr Sheikh also eased the stock market rules so as to spur the economy. It was unfortunate that the stock market, whose buoyancy has been used by successive governments as an indicator of the success of their economic policies, had fallen in the week preceding Dr Sheikh’s visit. However, the stock market saw revision in the rules appertaining to the capital gains tax, with the existing two bands being reduced to a single flat rate, and taxpayers being exempted till 2014, while withholding tax would be abolished.
The members of all three of the nation’s stock exchanges have been allowed to do business on other exchanges against a specified collateral amount from their respective Clearing House Funds. Dr Sheikh has moved the bourses thus towards the goal of a single stock exchange, on which brokers and investors alike would trade from anywhere in the country, on the same exchange. The government, as with the capital gains tax, is moving slowly on this, and is treating the stock market with kid gloves. This is obviously so as not to spook investors, and that is most likely the reason Dr Sheikh told the brokers that the economic situation, while not comfortable, was manageable, and that the government had the resources to repay the IMF. These are among the top concerns of investors and stockbrokers: how the economy will do as a whole, and whether the government is solvent or not. It is to be hoped that he is right. If not, the stock market may well keep on delivering a message the government does not want to hear.