Wither risk mitigation strategies?

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The Public Finance Management Act of 2019 [‘the Act”] was enacted with the primary aim of strengthening the overall monitoring and management of public finances. Its objective was to ensure that fiscal policies were formulated and executed for enhancing macroeconomic governance. This legislation applies to all aspects concerning the ‘Federal Consolidated Fund’, the ‘Public Account’ of the federation, and any other matter related to the federal government. Section 4 of the Act says: “The Federal Government shall, in respect of every financial year, cause to be laid before the National Assembly, Annual Budget Statement consistent with Articles 80 and 81 of the Constitution including a statement of the purpose and estimates divided into major objects for each demand for grant”. Section 4(3)(b) of the Act further stipulates that the “Annual Budget Statement shall also contain a statement of fiscal risks”.

On August 31, 2023, the Ministry of Finance (MoF) released Fiscal Risk Statement for FY2023-24, providing a comprehensive analysis of the potential risks and obstacles that could directly affect the country’s fiscal outlook in the coming years. Over the past two decades, economic challenges have emerged considerably, surpassing Pakistan’s financial capacity. Various administrations have made efforts to address these issues, but the effectiveness of their measures has consistently fallen short of the nature and scale of the challenges. Resultantly, exacerbated by fluctuations in commodity prices and geopolitical tensions the country’s economic stability and growth prospects have suffered immensely.

The GDP growth rate of 6.1% in the fiscal year (FY) 2022, primarily driven by import-led growth, resulted in an unsustainable current account deficit of US$17.48 billion. By end of FY 2022, the balance of trade in goods and services registered an alarming deficit of US$ 44.8 billion. In FY 2023, various policies and economic measures were implemented to reduce not only import bill but also unsustainable trade and current accounts deficits. As a result, by the end of FY 2023, current account deficit decreased significantly to US$ 2.3 billion. However, these measures adversely affected economic growth, leading to a sharp decline in GDP growth, which plummeted to 0.29% in FY 2023—even this official number is contested by the International Monetary Fund (IMF) and others too claiming that it was negative 0.5%.

In recent years Pakistan has witnessed a sharp rise in inflation that persistently exceeded 25% throughout FY 2023, hitting peak at 38% in the final quarter as per official numbers. Independent estimates are 42% to 45%. The government attributes this unprecedented phenomenon to a range of factors, including floods, currency devaluation, global rises in energy and food prices etc. Nevertheless, the principal culprits remain ad-hoc decision-making and the absence of coherent policies and strategies to tackle this crisis.

A significant portion of FY 2023 was devoted to endeavors aimed at reviving the suspended IMF 39-month US$ 6 billion Extended Financial Facility (EFF) programme, signed in July 2019, which was delayed due to our constant failure to adhere to its conditions. Delay in implementing agreed-upon measures created a sense of uncertainty escalating the risk of default to unprecedented levels.

External debt obligations, political instability, and global economic conditions exerted exceptional pressure on the Pakistani rupee, leading to considerable depreciation. In fact, it lost 40% of its value within a single year, specifically in FY 2023, and this trend would probably continue with a further 10% deterioration in the first two months of FY 2024. Additionally, due to imprudent economic management, complete lack of control and administrative failure on the government’s part, grey/informal currency market continues to thrive, with exchange rates ranging from 8% to 10% higher than the interbank rates.

This distortion serves as evidence of the government’s failure to fulfill its fundamental responsibilities. On the contrary, the State Bank of Pakistan (SBP) appears to rely solely on a conventional, orthodox response to combat inflation—repeatedly raising policy rate every few weeks. Policy rate, which has already reached 23%, is anticipated to climb even higher during the upcoming Monetary Policy Committee meeting. Despite dire circumstances faced by both the business community and the general public, the government and its officials seem to have reduced themselves to mere intermediaries, transferring the nightmare of deteriorating economic conditions onto the public. Little effort has been made to implement corrective measures or address inefficiencies in financial governance. Meanwhile, as the Pakistani rupee continues to depreciate and as energy prices maintain their upward trajectory, the government appears as a passive entity and silent observer, while the economy spirals downwards.

One area in need of immediate overhaul or divestment is State-Owned Enterprises (SOEs). According to the data presented in the Financial Risk Statement 2023-24, SOEs’ portfolio consists of 204 entities, with 85 of them classified as commercial enterprises. These 85 commercial SOEs are engaged in various businesses, including power, oil and gas, transport, communication, manufacturing, mining, engineering, finance, industrial estate development, wholesale, retail and marketing. The statement reveals that these SOEs collectively employ over 415,270 individuals and have reported losses amounting to Rs. 143 billion.

The Financial Risk Statement 2023-24 also points out that the erosion of profitability, capacity for investment, and financial viability within these SOEs resulting from such activities may not become fully apparent for several years. While the specific reasons for losses vary from one entity to another, common issues include physical system losses, expenditures not approved by regulators, slow progress in necessary restructuring efforts, and unresolved corporate governance problems.

Although the Financial Risk Statement 2023-24 highlights system losses in electricity and gas sectors as a critical area requiring reform, it does not provide any detailed plans or strategies for mitigation of the potential risks and way forward for improvement. The consequences of financial mismanagement and imbalances in the economy and public finances are significant, leading to a harmful cycle of fiscal deficits and increased borrowing. This cycle involves covering both deficit and debt servicing costs through borrowing and further borrowing.

In the face of these ongoing challenges and resource losses, instead of improving the system and implementing necessary controls, the government is transferring its full weight of inefficiency onto ordinary citizens who are thus left with a difficult choice between providing for their children’s basic needs or covering utility bills. It is despite Article 25 of the Constitution recognizing free and compulsory education as a fundamental right of all children between five to sixteen years of age. In blatant violation of this inalienable fundamental right, access to education has become a tremendous financial challenge for overwhelming majority.

Unfortunately, the funds that could have been allocated to enhancing social sector indicators are being redirected to sustain the financially unsustainable entities, extending them subsidies and grants. It is obvious that until we establish a comprehensive mechanism to rationalize our fiscal affairs, hardships faced by the general public will continue to increase leading to social unrest.


Dr. Ikramul Haq, Advocate Supreme Court, specializes in constitutional, corporate, media and cyber laws, ML/CFT, IT, intellectual property, arbitration and international taxation. He holds LLD in tax laws with specialization in transfer pricing. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996. He established Huzaima & Ikram in 1996 and is presently its chief partner as well as partner in Huzaima Ikram & Ijaz. He studied journalism, English literature and law. He is Chief Editor of Taxation.  He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).

He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical ReviewTowards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition,  Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales TaxLaw and Practice of Corporate LawLaw & Practice of Federal ExciseLaw & Practice of Sales Tax on ServicesFederal Tax Laws of PakistanProvincial Tax LawsPractical Handbook of Income Tax, Tax Laws of PakistanPrinciples of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

He is author of Commentary on Avoidance of Double Taxation Agreements signed by PakistanPakistan: From Hash to Heroin, its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. He regularly writes columns for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.

Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, investment companies, money service businesses, insurance companies and securities), government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, cross border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC).

The recent publication, coauthored with Huzaima Bukhari is: Pakistan Tackling FATF: Challenges & Solutions,

available at:  https://www.amazon.com/dp/B08RXH8W46  and https://aacp.com.pk/

Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate, media, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE). He can be reached on Twitter @DrIkramulHaq.


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