May 26 - June 01, 2008

The exercise for budget 2008-09 which started early last month is these days in the finalization stages. It has however, received a serious set back because of the resignation of the Finance Minister, Ishaq Dar. It amounts to the changing horses in the mid stream.

Budget making in our country has never been an easy exercise but the task of preparing the next year budget by the newly elected government looks quite formidable task. The scenario in which the new budget has to be put in place has been one of the considerable internal turmoil and political uncertainty besides galloping international oil prices, soaring inflation, highest budget and fiscal deficit, alarming trade imbalance, lower economic growth and persistent power shortage. People are anxiously expecting meaningful relief from the popularly elected government while, as usual, industrialists and businessmen are demanding more concessions and tax relief from the government.

It must be a hard task for the ministry of finance which lost its captain and jot a new one, Mr. Naveed Qamar with additional charge of Finance Ministry early last week and changed secretaries four times over the past one year, to produce a budget that reconcile conflicting interest while ensuring that the economy does not loose the growth momentum any further.

To satisfy the private sector, the government has formed an Economic Advisory Committee (EAC) that adequately accommodates representatives of the private sector and big business besides PPP loyalists and few appointees of the president camp. Naveed Qamar, Minister for Privatization and investment holding additional charge of finance is the chairman while banker Shaukat Tareen has been declared its chairman. The committee members include Salman Farooqi, Shehnaz Wazir Ali of PPP, Bashir Ali Mohammad, Mian Tariq Sagol, Faruq Rehmutullah and Salim Raza as private sector representatives and Ms Hina Rabbani Khar and Saqib Shirani from President camp and newly appointed finance secretary Mr. Farrukh Qayum.

The basic objective of the fiscal policy ought to be substantial increase in government resources, pruning of unnecessary and wasteful expenditure, relief to the fixed income group and provision of subsidy safety nets for the poorest sections of the society. But all this is easier said than done.

In recent years, the Revenue division has done a good job and it expects to achieve the tax revenue target of Rs one trillion set for this year also. How much additional taxation can yield has its own limitations and it cannot be done in discriminately. The ingenuity of the budget makers will lie in tapping areas from where they can raise additional resources. There is lot of potential for additional revenues by introducing tax on increase from agriculture, checking large scale tax evasions through vigilance and eliminating corruption from FBR and improving tax-GDP ratio to a reasonable level. But this needs an iron hand and full determination and will of the government.

While essential expenditures have to be maintained, the government will have to come hard on avoidable waste of resources. There has been some talk of cost over-runs this year which seems to have been contributed by the rising level of subsidies. The subsidy element cannot be discontinued and the exchequer will be picking up the tag on this account next year also. But on the expenditure side, close scrutiny would reveal that prudent spending and timely completion of projects can be of great help in improving the situation. Earlier, in times of stringency, the option of applying across-the-board cut had been used and such an exercise can perhaps save substantial amount of money for the government kitty.

Another relevant question would be as what should be the size of the annual development programme in the public sector. For the current financial year, the government had proposed Rs 520 billion public sector development programme. This could be maintained at this level for another year involving no big increase. This will also help in reducing the pressure on government resources the completion of ongoing projects could be given higher priority. As for the new ones, only the most essential of them could be initiated next year.

In view of considerable inflow of foreign investment, expected international aid inflows and invisible payments, the government will be able to tide over the balance of payments problem. In order to give some tangible support to democratic dispensation in Pakistan, its protagonists, especially in the developed world, should extend generous assistance in the shape of grants or aid on very soft terms. At a time when oil has gone up over 125 dollars a barrel, the aid perspective to the developing countries ought to undergo a noticeable change.

In ultimate analysis, the government will be able to bring its income and expenditure in balance but the people's expectations from their elected representatives are naturally high. They expect relief from rising prices; load shedding, unemployment and poverty. All of this cannot be obviously delivered through just a budget. They would, however, feel reassured if they find that a beginning has been made in moving towards these objectives. An austere style of governance could set the example for others to emulate.

A team of international Monetary fund arrived in Pakistan to discuss the next year budget with the federal government and to take a stock of the economy of the country that had shown slippage in most of the key economic sector.

The economic team of the government on Saturday briefed the visiting International Monetary Fund (IMF) mission on the 2008-09 budget strategy being followed by at to overcome fiscal difficulties in short span of time available. Sources said that Finance Ministry In charge Naveed Qamar gave a detailed presentation to permission on Pakistan's exports/imports in the 10 months of the current fiscal year, besides the inflows and outflows situation as on April 30, along with the latest situation of balance of payments, revenue generation and possible level of closing of the current account on June 30.

He told the mission that despite some major shocks in the recent years Pakistan's economic basics were in place for quick recovery. He said that the government was taking every possible measure to put Pakistan's economy back on track and make its major sectors vibrant for better performance.

State Banks of Pakistan (SBP) Governor Dr. Shamshad Akhtar also briefed the mission on Pakistan's monetary policy. She told its members that Pakistan would introduce its "Monetary Policy 2009, by the end of the current calendar year.

The IMF mission is in Islamabad for reviewing Pakistan's economy and performance of its key sectors during last 10 months of the current fiscal year. It will stay in Pakistan for 10 days and will hold meetings with senior officials. It is scheduled to meet the officials of Planning Commission, Privatization Commission, Economic Affairs Division, Ministry of Water and Power and other key institutional heads in Islamabad.

A delegation of Pakistan's economic team had attended the IMF/WB annual meeting in Washington and had briefed its officials on government strategy to minimize the damaged done by the last government to the economy and its strategy for coming out of the crisis-like situation. Pakistan's economy is under massive pressure and the government is focused on correction. Pakistan is not a member of any of IMF programme for financial support but under article 4 of the charter, the Fund can have biannual review of the economy. It can also suggest some measures to the government for making the economy strong however their implementation is not binding on Pakistan.