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

The key objectives set by the authors of the recent budget are reproduced below in italics followed by a brief comment on the ground realities that will have bearing on the achievement status of these objectives.

Restoration of economic stability through significant reduction of fiscal deficit, rationalization of subsidies, reduction in current account deficit and build-up of foreign exchange reserves to a minimum of $12 billion.

The current size of fiscal deficit is revised at 7 per cent of GDP as against the original 4 per cent for 2007-08 and the estimated 4.7 per cent for 2008-09. The deficit having overshot by a hefty 3 per cent does not seem containable in the wake of soaring oil prices that have doubled during a short period of last nine months. It will take some radical measures and a focused revamping of our resource generation system if we have to achieve the ambitious tax revenue target of Rs.1,252 billion. The targeted broadening of tax base can bring the small business and unorganized sector into the tax net, but who is going to tackle the big fish. In the politics of coalition, you feel obliged to a mutual scratching of backs to keep the show going. Further, in a highly inflationary economy, it is not easy to curtail government spending, be it developmental or otherwise. In the given situation, the 4.7 per cent deficit target looks a doubtful starter.

Rationalization of subsidies is a tricky issue. Effectively cutting on unnecessary subsidies to certain sectors and quarters coupled with a generous subsidy package to the farm sector would appear a reasonable solution to increase our farm output so vital to brave the food inflation tsunami. But then, the typical feudals with large size land holding are there to gobble the major chunk of subsidy without delivering any thing. The solution is simple yet difficult. Introduce radical land reforms and create a dependable society of small growers able to amply deliver under the patronage of a generous and effective subsidy regime. Generous farm subsidy is no taboo in any part of the world. Europe and US are known to have provided protection to their farmers with huge subsidies. These land reforms, we never needed so badly as now.

The huge trade deficit of $12.740 billion, during the first ten months of the fiscal year 2007-08, and a corresponding current account deficit of $ 11.586 billion during the same period is one of the major worries for the charge takers. Up till the previous year, the dollar inflow through foreign investors and overseas Pakistanis used to be enough to take care of the external payment problem. No doubt the unprecedented oil price hike during the last one year has done immense damage to our growing economy, yet the drying up of new foreign investment coupled with the exit of the existing one are something we ourselves are responsible for. The foreign investors seek stability, keeping their neutral stance to the government structure of the target country. We have been punished by the foreign investor for destabilizing a government on mundane issues. Around six billion US dollars have evaporated within a short period of 8 months. The remaining eleven billion are getting wings fast and will soon be able to fly at will. The $12 billion reserve target is yet another doubtful starter. The dent we have produced in the investor confidence may take years to get mended even if we start in earnest by introducing investor friendly policies. Moreover, the economy is in a double squeeze position. Besides distorting our external account position, the hike has triggered worldwide demand for dollars and in consequence depreciated the Pak Rupee.

The problems of current account deficit and fast depleting foreign reserves have assumed a gigantic proportion, but the solution is there. What is required is the will to act in fairness to this country and the masses. First, we should shift our focus from service to agriculture and industrial sectors in an objective manner to remove sectoral imbalances of the economy. Our agriculture has great export potential and, besides becoming a tool to fight poverty, can play an important part in the current food market economy. Further, the country will have to drastically reduce its dependence on oil by investing in gas projects and shifting focus from oil-based to coal-based and hydro energy projects. Lastly, now, when the country has completed its transition to the full democratic form of governance, we should strengthen our relations with the outside world making them believe that our growing economy holds great promise for their entrepreneurs and investors. Assuming a hostile stance against any of the world economies, on political grounds, will be highly counter productive.

Protect the vulnerable groups by increasing their incomes through a targeted program of cash transfers

While the cash transfer programs do not fuel inflation in the short run, the efficacy of such programs is doubtful in our society where such programs are taken as an extended use of Zakat concept. Our focus should be more on long term poverty alleviation measures aimed at inculcating in the beneficiaries a sense of self-respect and meaningful participation. In our case, the poverty problem is to a certain extent the result of administrative failures. The food prices can be brought down by busting the hoarder and smuggler gangs. The parliament structure now having radically changed, we can not say that the patrons of these gangs sitting in the parliament are blocking corrective moves.

The long term measures decree the enlargement of our bread-earner base by assigning a participatory role to our woman folk particularly in the rural areas. The under-utilized factor of production, that is our woman, has to be brought to the mainstream of economic activities. We can take a leaf from the Bangladesh Grameen Bank Model book. The overall expansion of agriculture sector with the full participation of woman folk will not only convert the disoriented agri population into a self-sufficient and respectable segment of society but will also diffuse the impact of urban-rural divide. The resultant accelerated farm output will create export surpluses on one hand and improve urban employment position on the other. The incomes of the vulnerable groups of the society should be increased through respectable means by affording them economic opportunities that our growing economy has in abundance.