I’m in agreement with much of the post-budget debates carried in these pages. It is clear that the government is banking on increased tax revenue to bridge its excessive fiscal deficit. That, while essential, will test the FBR, especially since it must take action on evaders quickly enough for increased revenues to start flowing during the ongoing fiscal year. Also, the provinces are still in the process of re-organising tax collection to reflect increased autonomy granted by the 18th amendment, hence concerns about generating enough funds to reduce the deficit.
While any pleasant surprises regarding revenue generation will become apparent by the end of the first quarter, there are more immediate initiatives that can build capacity and raise funds. First and foremost must be progress on checking billions in leakages from the government sector. As argued often in the budget debates in these pages, the issue of public sector enterprises losing hundreds of billions every year cannot be put off any longer. Voices of reason from the highest offices in the finance ministry and planning commission, pressing for turnaround and subsequent privatisation, provided hope in the run-up to the budget. Now the government must display the political resolve to go ahead with this necessity. The economy needs fiscal space, which is cramped by spending on loss-making entities. The sooner the privatisation process gathers steam, and proceeds are received, the better for the current account.
In addition to dealing with sick enterprises, the government must undertake serious structural reforms aimed at cutting unnecessary leakages and transforming the governance model. The most credible recommendations come from former central bank governor Dr Ishrat Hussain. His initiative, the national commission for government reform, rightly stresses the need for organising federal, provincial and local governments and the horizontal relationships within them. This is by far the most honest and comprehensive study on some of the most pressing fundamental advances needed in the government machinery. Relevant authorities must take this set of proposals very seriously rather than forming more committees to weigh options. Another welcome proposal has come from the planning commission deputy chairman, Dr Nadeem ul Haque, which advocates leveraging existing infrastructure to unlock presently untapped resources. The Lahore mall road is a good example, surrounded on both sides by quality, expensive real estate occupied by government concerns. Not only do they not raise revenue, but are an added taxpayer burden. We need to reorient our posture and become more investor-friendly. Most advanced economies use public-private partnerships to develop prime property, remove it from government control and generate revenue. There is a lot of investment potential in our existing infrastructure which must be utilised more effectively. Trending valuable land towards commercial expansion will not only positively impact employment, but drive up property prices. At a time when Pakistani investments abroad, especially in the Middle East, are eyeing favourable opportunities at home, healthy property investment will also increase remittances and encourage repatriation of funds, providing much needed fillip to growth.
Interestingly, there is also a lot more productive potential in the agri-sector than presently realised. Growth in the largest national employer must be exploited by initiating public works programs. Building on rural area success, there is tremendous space for improving rural-to-urban social overhead capital. This kind of targeted fiscal policy is ideal for stimulating employment and national growth. These projects will provide jobs, encourage consumer spending and engineer the much needed multiplier, besides facilitating product transportation and ultimately trade.
So, as we wait to see official progress on fundamental taxation issues, there are intermediate steps that will reflect government will. Relevant offices will have to act quickly to meet targets and protect their credibility. Budget expectations clearly reflected government realisation that the present year’s performance will have to be much better than the last one’s to get the economy back on track. It must also appreciate the importance of policies that avoid waste and unlock productive potential. Delaying such measures because of next year’s general election will be self-defeating, since meeting budgetary targets will be essential to appeal to an already disgruntled electorate.
