What a non-event the budget has become now. Till a few decades back, people would wait for it knowing that it could have major impact on their economic well-being. It was also a time that the government used to give accounting for the previous year and its plans for the coming one.
But a lot has changed. Liberalisation, privatisation and de-centralisation have taken a lot of things out of the federal budget. Most of the goods and services that people buy now are completely or mainly provided for by the private sector. So, the role of government has, in many sectors, diminished – and hence the ability of the federal budget to affect the lives of people.
Devolution and the 18th Amendment have also moved a lot of services that were federally provided to the provinces and this too has decreased interest in the federal budget. A lot of other sectors, though government retains significant control over them, have been moved under specialised regulators like OGRA, NEPRA and so on and this too has made the federal budget less important. These sectors do their pricing and other decisions independently of the federal budget cycle.
What the budget contains, for an ordinary citizen, is really information on any changes in salaries and benefits of federal employees, changes in the taxation structure, policy and rates, any major changes in non-targeted/targeted subsidies, and government reading of the economic situation and its future plans. But given that this is an election year and the government is planning to go to the polls before the next budget, the plans were not too hard to guess. The government wanted to say that despite poor external and some internal conditions, we did well. We would like to do much better, but the conditions have been holding us back. And in these conditions getting 3.7 percent growth, bringing inflation down and holding our head above the water was a good show.
External as well as internal conditions have been quite a challenge. Relations with the US have been problematic since last year, we are currently not getting any support from the IMF and though there have been some inflows from World Bank/ADB and some bi –laterals, most of our reliance has been on remittance and export earnings. And this has kept pressure on the foreign account side of the economy. Internally the poor performance of manufacturing and agriculture, the drying up of investment, floods, and the insurgency in the North have all meant a difficult year.
Having acknowledged these facts where the budget fails to be as convincing is in arguing what the government plans to do about these challenges. What is the game plan for improving relations with the US? Are there plans to go back to the IMF? Are we looking for any breakthroughs in exports? On the internal front, what is the strategy against the insurgency, what are the plans for bringing back growth, for manufacturing sector, or for increasing agricultural productivity, and if water is an issue, too little of it or too much of it, what are the plans for managing it better?
The budget might not be the right place for all of these plans and their details, but the budget speech should have been able to refer to other places where these plans are available and it should have been able to explain how the economic strategy of the government ties in with these other strategies and plans. There are no such plans available and one fears that the government does not have these plans and strategies worked out. We know there will be an export policy coming soon. But usually the export policy is a non event as well: it is a list of small changes in the duty structure and so on with little or nothing on how the government wants to tackle the bigger issues. For other areas we are not even going to have any policy announcements.
The Planning Commission of Pakistan did have a growth strategy, but interestingly there was little direct linkage between the budget and the growth strategy. If indeed that is the growth strategy of the government, there should have been more of an effort on the part of the government to link the two. Maybe the Planning Commission can still do that in the aftermath of the budget and while it is being debated.
Everyday concerns of Pakistanis are about jobs, income, inflation, being able to provide well for their families and getting them the goods and services they need. The budget was about how the government thought they had done and really did not directly address the concerns of the people. It would have been much better had the government decided to explain how they are going to get growth back in the economy. Which sectors are going to lead the charge, is it going to be through export orientation or local consumption, how are the chronic and embedded problems of low agricultural productivity to be addressed and most importantly, where the jobs are going to be created and how. If cities are going to be the hubs of growth how are urban planning issues to be looked at and by whom? How is a person with Rs. 8,000 per month to provide for his/her family when he/she has to buy almost all goods and services, including health, education, and sometimes even water, through markets? Given the income distribution of the country majority of Pakistanis are vulnerable to income shocks: the question is how the government could reduce their vulnerability and make them move into more secure positions over time. Sadly none of this is part of the budget or the larger discussions that should have informed the budget.
This was an election budget and the government is looking to go to the people soon. Then how could they have not addressed, or tried to address, some of these questions. A conjecture would be that the finance and planning departments of the government have, over time, become more narrowly focused on macroeconomic issues and the technical details of managing the budget. And they have not internalised the change that should have come along with the changes in our economy and governance structures. Maybe the finance apparatus of the government lacks depth too. But it must also be the case that at some level or the other the government feels that with enough rhetoric and enough expenditures on the development side, the government can still manage the upcoming election. Maybe that is the case. But it does leave the budget as more or less a non event.
The writer is an Associate Professor of Economics at LUMS (currently on leave) and a Senior Advisor at Open Society Foundation (OSF). He can be reached at [email protected]
