SHAMSUL GHANI (shams_ghani@hotmail.com)
June 16 - 22, 2008

The stand-in Finance Minister, with too little a time at his disposal, has produced a budget document with mixed fiscal recommendations basically aimed at drawing as little criticism as possible. The nation already simmering in the heat of June and long march seems lost in the maze of budgetary numbers finding it difficult to produce a cut-and-dried response. The experts also seem divided according to their direct or indirect attachment to the three presently dominant political groups. Standard & Poor, not charmed by any of these groups, has however commented that the government revenue and expenditure targets faced significant implementation risks. A social science research economist Asad Sayeed said, "The great fear is on the revenue front. Meeting the deficit target would require drastic efforts which don't seem realistic in the current circumstances."

The Rs.2.01 trillion outlay marking a 30 per cent increase in the previous outlay of Rs.1.59 trillion envisages a passive 5.5 per cent GDP growth during 2008-09 vis--vis a revised growth target of 6.8 per cent for the current fiscal year. The estimated deficit target of 4.7 per cent in the face of the actual current deficit of 7 per cent, which has been revised up from the original 4 per cent, seems to be the real bone of contention. Except for the GST rate increase from 15 per cent to 16 per cent and proposals to tax certain services, no explicit measures to increase revenue have been taken barring the vague resolve to increase tax base. The given situation raises doubts that a series of mini budgets is in the offing in the shape of fuel and energy price hikes. Till such time these doubts materialize, we should stamp the document as "reasonably acceptable".


Is it not a travesty of economics that after reducing our foreign exchange reserve build-ups from $16.5 billion in October, 2007 to the present $11.5 billion through self-inflicted political destabilization, we have now targeted a fresh level of $12 billion? The flight of capital taking place at a sustained pace is not going to stop given the present political scenario of intra coalition and inter party conflicts. The targeted level may prove to be quite elusive. While listing the political and economic crises this country has witnessed during the last one year or so, the Finance Minister stated, "The current budget has taken the brunt of all ills that were associated with these crises so much so that it is threatening to undo much of the gains which the economy had achieved in the last four years."

This is a candid admission of the growth pattern the economy was following during the last 4-5 years. It was surely the untimely and ill conceived political adventurism that produced negative vibes and the once burgeoning economy ended up in a shell-shocked condition leaving no alternatives for the foreign investors but to flee. How long will it take to bring them back, especially in the fast deteriorating atmosphere, is anybody's guess. This is high time we forthrightly admitted our recent-past follies and quickly revamped our wrecked political and economic systems.


The table below gives a summarized version of resource and expenditure figures of the budget.




Tax Revenues


General Public Service


Non Tax Revenues




Gross Revenue Receipts


Economic Affairs


External Receipts


Public Order Safety Affairs


Less Provincial Share


Current Expenditure


PSDP Self Financing by Provinces


Federal Govt. PSDP


Bank Borrowings


Provinces' PSDP



The budget 2008-09 envisages the following fiscal targets:

* A passive GDP growth rate of 5.5 per cent to be achieved

* Gross investment to GDP ratio of 25 per cent to be maintained

* Inflation to be contained at 12 per cent

* Savings rate to be increased from the existing 13.3 per cent to 14 plus.

* Fiscal deficit to be contained at 4.7 per cent as against the existing (revised) 7 per cent

* Current account deficit to be reduced from the existing 8 per cent to 6 per cent

* Foreign exchange reserves level to be maintained at $12 billion.


The budget, on the basis of whatever information has been made available, aims at soothing the highly jaded nerves of the society, at least for the time being. Monthly cash transfer of Rs.1,000 to the very poor families, 20 per cent increase in the salary of government employees, defence services personnel and pensioners together with the 100 per cent increase in the conveyance allowance, increase in minimum pension from Rs.300 to Rs.1,000, increase in minimum wage from Rs.4,600 to Rs.6,000, increase in DAP subsidy from Rs.407 per bag to Rs.1,000 per bag and a 2 per cent increase in the profit rates of national savings schemes are the pacifying measures that have enveloped almost all the segments of the society, in one way or the other. On the other hand, increase in GST rate from 15 to 16 per cent, taxing of certain services and reduction in subsidy to the oil and energy sector are going to silently take back what has been doled out. No measures to attract back the fleeing foreign investors have been spelled out. In the present international food market situation, we have an opportunity of life time. To grab this opportunity we must immediately introduce wide-range land reforms breaking the stranglehold of large size land holders and then put our money on the hard working small growers by pampering them with high subsidies and modern farm technology. The resulting good quality bumper crops will not only solve domestic food problems but will also give boost to our dwindling export sector. But who is going to do that?