BUDGET 2006-07 ON JUNE 7

According to the Prime Minister and his team, all social and economic indicators of Pakistan were showing positive trends

From SHAMIM AHMED RIZVI, Islamabad
May 29 - June 04, 2006

As disclosed by the Minster for Parliamentary Affairs Dr Sher Afghan, the budget for the financial year 2006-07 will be presented in the National Assembly on June 7, 2006. Minister of State for Finance, Omer Ayub Khan will present the budget.

The budget for the coming fiscal is going to be a true challenge and a real test of ingenuity and expertise of the economic managers of this country to devise ways and means to effectively meet the serious challenges facing the economy like unprecedented trade deficit, high inflation, rising economic disparities, growing poverty and unemployment and high expectation of the salaried and fixed income groups for a meaningful relief to compensate them for their declining purchasing power.

By now the economic managers and budget makers must have realized that they are loosing their creditability and their oft repeated tall claims and impressive figures are not being believed by the people of Pakistan as well as a out side the country. The hollowness of the tall claims that inflation had been contained, poverty reduced, per capita income increased to $ 800 and the benefits of the economic growth have started reaching the common man with a positive impact on the life of the common man, during a 3 day debate in the National Assembly last month where speakers after one another, belonging to both sides of the house, bemoaned the plight of the common man and challenged the tall claims that economic growth was leading to prosperity of the people of Pakistan. It has only helped and added to the wealth of only 10 percent of elite of this country while adversely affecting the poor making them poorer", the unanimously maintained.

At the meeting of the forum previously known as "Aid to Pakistan Club" in Islamabad about 2 weeks back which was attended by almost all multinational donors, representatives of the Government of Pakistan including the Prime Minster and other participants specially the donor agencies emphasized their views in a way as they were talking about of two different economies. While the Prime Minister's speech was a great morale booster as he narrated the success story of Pakistan economy and his adviser, Salman Shah commended the performance of economy in a highly positive tone, the representatives from international organization and the private sector expressed serious reservations about some of the recent developments and the trends of Pakistan economy.

According to the Prime Minister and his team, all social and economic indicators of Pakistan were showing positive trends. The country would sustain acceleration in growth within a range of 6 to 8 percent over the next 5 to 10 years despite so many challenges likely to be confronted. Poverty had declined from 32.1 percent to 25.4 percent and per capital income was expected to reach 800 dollars by end of June this year. Gross primary enrolment had increased to 86 percent, immunization of children had gone up to 83 percent, water supply had been assured to 39 percent of the population and Pakistan was fast emerging as a good choice for investors. The country, the Prime Minister asserted, "is all set to become" a regional economic hub with a specific role as trade and energy corridor for China and Central Asian countries.

Non-government participants were quite blunt in their criticism of some aspects of the economic performance though they did not directly argue against the statements from the government side. According to Praful Patel, World Bank's Vice President for South Asia, Pakistan had history of "boom bust cycles" and "now is the time to sharpen the watch on macro economic situation". Pakistan's economy had started showing signs of 'overheating as imports were swelling at a faster rate than exports. The root causes of growing external imbalances needed to be addressed through coordinating monetary and fiscal policy reforms to avoid "pain and disruption of a hard landing". An inequitable distribution of assets was depriving the common people of due share of the benefits of growth. Patel added that despite seven years of trade, regulatory and banking reforms, the cost of doing business in Pakistan was still too high. Ahmad Mohammad Ali, President of Islamic Development Bank, said that unless the fruits of growth produce a credible impact on the lives of common people, ground realities would not change. Another challenge was how to mobilize domestic savings for investment, notwithstanding the importance of international resources. Ahmad Ali also urged the government to provide alternatives to encourage more of its migrant workers to channel their remittances into infrastructure and other development projects. The European Union delegate advised the government to pay more attention to growing inequality, as economic growth alone could not reduce poverty. He also sought repeal of 'discriminatory' stipulations of the Hudood Ordinance, blasphemy law and Qisas and Diyat laws. According to the ILO Director, unemployment of the educated class had increased in the past few years. Private sector representatives expressed worries about rising trade deficit, lack of trained workforce, low educational standards, looming energy shortage and higher cost of doing business that together hampered Pakistan's ability to compete in the international market. Budget makers are expected to focus on these issues which planning for the coming financial year.

While speaking at a pre-budget seminar arranged by Daily Nation, Dr. Salman Shah, Advisor to PM on Finance, admitted that sustainability of growth was the biggest challenge before them. He assured that no new tax would be imposed in the coming budget which will be a pro-poor budget providing meaningful relief to fixed income group. Additional revenues would be generated through detecting new taxpayers and widening tax base and effectively controlling tax evasions at various levels. He assured that there will be a substantial increase in allocation to Public Sector Development Program (it may go up to Rs. 350 billion from Rs. 204 billion in 2005-06) aiming to create new jobs and reduction in poverty.

Predictably, speakers at Seminar remained divided in two broad camps, with those outside the government saying bluntly a lot more needs to be done before claims of a successful turnaround can be justified and those representing it continuing with the all is well theme. Even as prominent economists and industrialists reminded the government of persistent loopholes needing treatment, the official line reminded in urn that the only turns the economy is taking are for the better. Also quite predictably, the economic managers have promised a "pro-poor budget" for the coming fiscal. Unfortunately though, rather than prompt the lower income groups to brace themselves for any improvement in their living standards, the promise raises serious questions.

It is pertinent to note that the pro-poor budget has been promised at a time when the economy is losing some of the impressive growth momentum achieved last year. Down from the 8 percent plus mark, GDP growth is expected to end up around six and a half percent this fiscal. The question presents itself then that if the trickledown remained so painfully elusive when the economy was doing much better, how will it be ensured with a decline? Much more importantly, with official circles refusing to recognize some of the serious negative spillovers of their policies (they claim poverty has actually reduced), there is little hope of concrete action to counter negative trends. Praiseworthy as some statistics are, they cannot be accepted as such if they pale once the overall picture is taken into account. The robust rise in exports is appreciable, but they have stood helpless as the trade deficit is set to be the highest ever. Increased tax earnings are good news, but they do not do the desired good by amounting to precious little for a country the size of Pakistan, that too owing to lack of will to expand the tax base.

Since the Finance Ministry must be feverishly considering proposals to incorporate in the coming budget document, it is suggested they give genuine pro-poor policies more emphasis, beyond the rhetoric we are presented with every time before yet another budget for the rich. With the contents of successive budget documents being almost as predictable as these pre-budget seminars, few would believe the center would consider something different for the lower groups this time around. The exercise must begin with sincere efforts to bridge the rising rich poor gap. The up-down models need turning upside down. Having achieved success on the growth front, there should be visible efforts to spread its fruits.