It’s not the numbers, it’s the direction
Now that everybody has had a few days to digest the budget, it seems this year’s document stands out not for the numbers missed or projected, but rather for the posture of the present government with regard to the economy.
And while there is the “highest rate of growth in six years”, a reduction in the fiscal deficit, and even stabilisation of the rupee to boast, not much has improved for the common man. The finance minister spoke at length, stressing that the economy had turned around, and increased growth of a percentage-point-a-year will take it to the 6-7 per cent range, by when inflation will be well under control and exports expanding exponentially.
But these promises have brought little comfort on the street, where eight-point-something inflation is almost as unbearable as the last days of the previous government, and energy shortage, especially as the summer rolls on, means little of the “turnaround” has reached a bulk of the masses.
Way forward
And analysts and politicians alike seem to disagree with the government’s priorities about the way forward. The budget shows a clear liking for mega projects; motorways, large infrastructure projects and power plants will stimulate employment, generate the multiplier, etc.
But the eventual cost-benefit analysis is vague.
“It is true that energy is the biggest constraint, so we do need power plants, also water projects, which is imperative”, said Dr Hafeez Pasha, former federal minister and deputy chairman of the planning commission. “But the motorways and such projects make absolutely no sense. They are actually a visible manifestation of a certain tendency for grandeur which afflicts the ruling class. They are just not needed”.
With the extra fiscal space, however limited, many experts expected the government to finally concentrate on expanding the human resource base, making provisions of diversifying exports, and making visible efforts to expand the tax base. But the intent clearly seems to be big projects, not a structural transformation of the economy.
With the extra fiscal space, however limited, many experts expected the government to finally concentrate on expanding the human resource base, making provisions of diversifying exports, and making visible efforts to expand the tax base. But the intent clearly seems to be big projects, not a structural transformation of the economy.
“The budget is a clear reflection of the government’s priorities”, said Dr Salman Shah, former finance minister and part of the Musharraf government’s economic team which recorded the highest rate of growth in recent years. “These projects are meant to give the impression that they are transforming the economy. Such mega projects suit economies like the EU and US, not ours, but unfortunately you don’t get votes by working on education and health”.
And since the budget is actually a play on numbers, it is surprising that public benefits of these projects have not been quantified to any degree.
“If these projects are good for the development budget, then why is the rate of return not explained?” questioned Dr Shah. “What will be the benefit, in quantifiable terms, of the motorway to the economy, or to the people?”
If anything, he noted, these projects will actually start eating into the development budget very soon. When public announcements are over and it is time to begin payments, there will be rapid cuts in the PSDP.
Surrender on taxes
Another area where budget rhetoric failed very quickly was the tax collection issue. Anybody who remembers Dar sahib’s last speech will remember bold promises, and subsequent appreciation, that efforts might finally be made to arrest tax evaders.
But as the year went on, and repeated breaks were allowed to industry lobbyists, it became clear that little had changed. That is another reason that most common people do not lay as much stress to numbers and targets in the budget as to the direction it points in. And as far as the symbolism goes, at least regarding taxation, this budget is increasingly being seen as an abject failure.
“There’s no doubt that the government has completely given up on taxes”, said Dr Pasha. “It is a complete admission of defeat. We have moved from sector based regulation back to the early ‘90s. They are just distinguishing between people who file returns and those who don’t, which can be discriminatory. This is a regime of withholding tax”.
This means the Federal Bureau of Revenue (FBR) has lost legitimacy.
“It seems there is no real will on the tax issue”, added Dr Shah. “The PPP government tried to introduce the VAT regime, a 21st century instrument, but it was rejected by everybody, including the N-league. Now by transferring taxes to rents and bills, they have made the FBR redundant”.
Loud promises of netting non-filers, too, have proved hollow. Therefore it is little surprise that last fiscal’s target was revised down from Rs2381b to Rs2050b and eventually settled at Rs1946b.
“The whole exercise of netting three-million-plus FBR evaders proved a joke”, said Asad Umar, senior vice president, Pakistan Tehreek I Insaaf (PTI). “Despite the promises all they could collect in one year was Rs10 crores, so now they have fallen back on gimmickry”.
Other concerns
It seems that the high(er) growth figure too, 4.1 per cent, is an exaggeration in real terms, according to Umar. It was basically the result of buoyancy provided by increased energy supply to large scale manufacturing (LSM), which affected a momentary uptick in exports.
“Growth was faster in the first half of the year”, he added. “But between February and March it dropped, even contracted. And exports were down 10 per cent in April. So, wait till adjusted figures come in before you appreciate the growth rate”.
Going forward, analysts, politicians and common folk alike seem convinced that the budget was more talk than substance, and few give the government even a slim chance of meeting growth and revenue targets, both in the short and long term.
The PTI will announce their formal response to the budget later today. The party shares popular opposition sentiment that the budget is not only overly business friendly at the cost of the common man, but also gives unprecedented incentives to overseas investors as opposed to domestic players.
“They have officially declared overseas investors as more preferable”, said Umar. “I don’t believe I have ever seen this before, anywhere in the world”
Going forward, analysts, politicians and common folk alike seem convinced that the budget was more talk than substance, and few give the government even a slim chance of meeting growth and revenue targets, both in the short and long term.
Even steps taken to bolster the balance of payments have proved self-defeating. The exogenous injection of a billion-and-a-half dollars, meant to strengthen the rupee, instead ate into exports, negating much of the GSP plus benefits.
“But it didn’t help the people because import prices did not go down, even ghee, tea, etc”, added Dr Pasha. “What benefit did rupee stabilisation bring the people then? Since it did not arrest inflation, and failed to impact prices on the down side, and actually harmed exports, it can only be seen as a failure”.
Dar’s budget failed to signal what most stakeholders had anticipated; focus on better economic management and increasing economic efficiency. There is also a need for PSDP reforms. Invariably the development budget gets the axe for unrealistic government policies. Unless deep rooted structural advances are incorporated, Dar sahib will only embarrass himself, and the government, at successive budget presentations. And no matter how long his speeches or how many big projects he announces, the people’s lives will be little different.
