Without an overall strategy, the new budget will again tweak at the edges. This is stated in a report by the Institute for Policy Reforms.
The report gives comprehensive proposals for the coming budget. It says that a meaningful budget should be guided by a medium-term economic strategy. So far, it seems that this is being done for the name alone. Clarity of goals and coherence in government plans are important for economic management. It is, therefore, no surprise that there has been no improvement in the economy’s fundamentals. The report called upon the government to respond especially to the balance of payments challenge. Depending on Chinese largesse is not a plan.
There are concerns with the way government makes the budget as its stated goals and estimates often turn out to be misplaced. In most years, the budget sets out to realise the aims of growth and poverty alleviation. However, few measures in the budget support these goals.
Similarly, GoP forecasts a lower than justified target for the fiscal deficit. It usually gives higher revenue and lower expense amounts than circumstances merit. It also uses the high provincial surplus estimate to bridge the gap. Why must we resort to artifice, the report questions; successive governments have made no fundamental shift in policy.
To earn more revenue, GoP must make hard choices that affect the political economy of tax avoidance and evasion. To make spending more effective, it must revisit subsidies for PSEs and power supply. It must also think through development priorities and debt management. These are top level decisions. The government has done well at fiscal consolidation recently. In fact, 2015-16 was the first time in years that FBR achieved its target. Yet, for many reasons, we are far from having a stable macroeconomy that can underpin growth.
The economy faces enduring challenges. These include the twin fiscal and current account deficits, insufficient funds for services and investment, and ineffective public spending. There are indications that energy prices may increase again. That means further pressure on the Balance of Payment and on inflation; the latter has been in control recently.
Manufacturing growth is well below target and agriculture has only modestly recovered from last year’s radical decline while exports are stagnant.
