Addressing a pre-budget conference Finance Minister Muhammad Ishaq Dar on Saturday said that the circular debt would be cleared by July this year. In December, Prime Minister Nawaz Sharif said his government will overcome the chronic issue of loadshedding before 2018. These promises are the stuff of wild fantasies, and the nation cannot wait to seem them come true.
Dar has stated that the government was determined to achieve a 7 percent GDP growth rate by 2018 and believed that the government had achieved macro-economic stability. It was because of this stability that China gave Pakistan the package of $46 billion. Firstly, it is probably the $46 million that has improved the macroeconomic climate. The Chinese investment was in fact delayed due to political and economic instability last August. Secondly, even if we have some form of “stability”, which means we are closing the gaps between our expenditures and deficits, how does this translate to the end of circular debt?
As of February 2016, WAPDA had failed to recover outstanding dues amounting to Rs 233 billion from defaulters so far despite tall claims by the Ministry of Water and Power. In fact, the Ministry of Water and Power has said that WAPDA’s failure is due to a lack proper legislation in the country. If we need to create new laws to catch defaulters, the matter seems much too complicated to be resolved by July. The governance at the public utility companies continues to be poor. Defaults continue to pile up and there is improvement in managing line losses.
The government’s plan to privatise the loss-making power distribution companies in the public sector has been put on hold due to fears of a backlash by labour unions. Circular debt continues to dent the financial sustainability of the power sector. Until the energy sector is brought out of its technical and managerial crisis, the debt in the sector cannot be plugged.
The whole speech at the pre-budget conference was a highly optimistic list, while in reality, when the budget is made, all the stability the Minister is lauding will not result in any relief. Taxes are going to be at an all time high; circular debt rather than being removed will not be factored into the budget like last year, presenting a rosier picture; and all the increasing in GDP and sector growth rates will not be due to indigenous growth, but due to Chinese investment.
Earlier this month, Dar stated that Pakistan no longer needs the International Monetary Fund’s (IMF) financial support. If he can pull this one off, and make sure Pakistan is free of IMF and its ridiculous austerity politics, we may yet start believing in magic.