The budget rigmarole

Facts and figures don’t back up government’s claims

The budget presented in the national assembly on June 3, 2014, is the second budget announced by the incumbent government. Unfortunately, the government has failed to achieve almost all of the key economic targets it had set last year after coming to power, highlighting the consequences of delays in introducing tough structural reforms. According to the finance minister, the government is facing the most daunting task of repairing a broken economy, and has embarked on a very comprehensive agenda of economic reform to spur growth, maintain price stability, provide jobs to the youth and rebuild key infrastructure of the country. Therefore, they have considered all these points in preparing the budget. But, regrettably, the government has again favoured the elite, the industrialists and not the poor and the agriculturalists. The poor would get poorer as a result of this budget.

The finance minister has also launched the Economic Survey of Pakistan, a pre-budget document from which it is clear that the GDP has increased to four per cent, which has happened for the first time in the last six years. The key indicator of tax-to-GDP ratio was again missed and stood at only 8.8 per cent. Regrettably, on the one hand, the so-called democratic government is taking loans from the IMF and the World Bank; while on the other hand, it claims that the people of Pakistan are enjoying economic growth. However, it is more than 190 million population that has come under the burden of loan of 900 USD per person and this also covers the coming generations.

There is no doubt that the government is trying to prioritise socio-economic development, but it is undeniable that socio-economic prosperity largely depends on the state’s capacity to ensure the traditional as well as non-traditional security threats. Pakistan is currently facing multiple security challenges. The finance minister has very aptly pointed out the major social problem. Half of the population of the Islamic Republic subsists below the poverty line. How can the proposed budget address the issue to at least reduce this proportion, say by a quarter? Poverty, of course, is indicative of a lack of access to productive resources.

Let us take a look at another blot on the perfect fabric of the Land of the Pure — illiteracy. How difficult is it to mount a true crusade to vanquish this monster when the education budget allocation in real terms has declined by 11per cent? The government has allocated 75 per cent of education outlay for higher education even as students have better means of securing scholarship for them. Primary and secondary education has not been given equal attention. If the budget had provided more funds for the noble cause of primary and secondary education, the process would have created opportunities for productive employment and long-term economic growth, and perhaps a meaningful societal change.

Last but not least, a bit of basic economics. A successful market economy requires sufficient savings for investment to grow and expand. Where are the incentives that should have been in the budget document to seriously curb the conspicuous consumption through taxing luxury items? That would have promoted savings with reasonable rates of interest and made these available for investment through maintaining the interest rates of banks.

There is no doubt that Pakistan’s economy is in a dire state but we need to remember that the weak security situation is one of the major factors for that. Though the government has introduced welfare schemes for the farmers, the unemployed, the businessmen and an ad-hoc 10 per cent increase in pensions and salaries for government employees, that cannot be considered a welcome step by the masses, considering the inflationary pressures they are facing.

The fiscal deficit which was more than 8 per cent has suddenly come down to 5.8 per cent. This is strange, especially when the tax revenue target was also underachieved and expenditures did not come down. That forced the Federal Board of Revenue (FBR) to raise an ambitious revenue target which is 23 per cent higher than the revised figure of PKR2,275 billion for fiscal year 2013-2014 to PKR2,810 billion in fiscal year 2014-2015 without announcing key revenue measures and policy actions. What is the plan “B” of the government if the FBR fails to achieve the revenue target in the absence of reforms and capacity constraints, factors that are critical to the economy?

Against this backdrop, it is the need of the hour to directly address issues through proper long-term planning and by building harmony among all the stakeholders. Without internal political, security and policy stability, we cannot grasp the opportunities that the regional and global situations are offering as major changes are taking place around us. Pakistan will have to formulate a comprehensive energy policy and make huge investments in the power, education and health sectors.