A question of capacity

It’s not that budget targets are unattainable, it’s whether the government has the capacity to achieve them. Expected rise in the tax-to-GDP ratio to 9.3 per cent is a good example. Though ambitious, it should be achieved. But whether or not the FBR can mobilise fast enough is another matter, and will depend as much on the bureau’s capability as the political mindset at the top.
It is encouraging that tax authorities have finally begun netting high-worth tax evaders. Even if the collection target is achieved though, the percentage is well below our present revenue generation requirements. Therefore, the sooner perusal turns into prosecution the better for government fiscal space and public sentiment.
Trimming the fiscal deficit is another important feature. The finance ministry is right in stressing the urgency of reducing it to five per cent of GDP, but the government has yet to display financial discipline needed for such belt tightening. Public sector losses are in the billions, with little signs of improvement failing immediate and aggressive reforms. The government’s reckless borrowing from the central bank has deepened stagflation. Financial indiscipline in the outgoing year cannot be attributed to unforeseen natural and security issues. Authorities were simply unable, or unwilling, to check needless leakages and take proactive steps to provide additional fiscal room.
Most importantly, I did not see any emphasis on exports in this year’s budget, which is surprising. I expected to see clear efforts to diversify our export base, especially since the need to raise earnings has never been greater. Last year’s numbers were good, but the international commodity and cotton boom they rode is cycling out and will not provide similar fillip this time. The export sector needs serious overhaul. We simply cannot continue to rely on textiles alone as our major export earner. No country in the world can boost trade revenue this way. The textile sector just does not have the capacity to form the backbone of any country’s export basket.
We must immediately broaden our export base by incorporating value addition and including the engineering and IT sectors in it. Till this vital step is taken, our trade competitiveness will remain low. And as regional emerging markets continue to grow, Pakistan will remain trapped in low growth, with the government unable to divert enough resources to sectors that should take the lead in industry growth.
Boosting trade and industry will positively impact job creation, which should be the government’s prime focus at this time. Particular emphasis should be placed on the manufacturing sector, which is seen registering an overall declining trend. Revitalising it is essential to reducing unemployment levels, yet it seems to merit little, if any, high-level consideration.
Without the fiscal elbowroom these measures will bring, defence and debt allocations will continue to restrict the government’s ability to maneuver. Our debt, along with its servicing needs, has ballooned exponentially over the last few years. With the government unable to trim its operating costs, it invariably ends up cutting the development budget all year long.
It is important to note that the PSDP is among the most central avenues of job creation. Its periodic slicing has a direct impact on the youth, which makes up the biggest proportion of our demographic mix. The government must curtail excessive running expenses that prompt it to reduce the development budget.
One of the most important steps in that direction is initiating immediate privatisation of sick public sector enterprises that lose the economy billions every year. The Pakistan Business Council has already made it clear that this tough decision will have to be taken. How soon the government responds will reflect its seriousness about achieving budget targets, since all these steps are interlinked. Until the government checks public leakages its fiscal ability will remain cramped, pushing it to increased borrowing and compromising the PSDP.
The government will be in election drive at the time of next year’s budget. So the question is not just if these reforms can be undertaken, but if the exercise can be done fast enough. If it is to be successful, we should begin seeing positive steps by the end of the first quarter. The government’s determination, more than the organizational setup, is at test.

The writer is a former commerce minister