May 25 - 31, 2009

Today Pakistan's economy is facing many serious challenges as FY2008-09 is closing to its end. These challenges include increasing budget deficit and inflation, increasing poverty, electricity, and water shortages, which are resulting into closure of many industries, which further intensify the problem of unemployment. Although there are many countries under an economic slump, we as nation are facing these challenges with added special challenges of political instability and terrorism. Therefore, among all challenges appears the challenge of our fight against terrorism that now is accompanied with the challenge of handling internal displaced people coming from areas under the war.

In this situation preparation of budget 2009-10 has become more complex for the government in terms of appropriate allocation of resources. More than decision on allocation of budget, significant is the sincerity of government towards easing the problems of the people of Pakistan. The current indication by the officials of finance department for expanding the tax net does not show a problem-solving attitude. However, this time decisions should be communicating the sincerity of government to establish the confidence of the people in all four provinces.

In the light of this situation, government should focus on these points while preparing budget 2009-10. Non-development expenditures should be curtailed and resources be mobilized to achieve economic stabilization. Slashing the non-development expenditures of various ministries, departments and autonomous bodies' etc. may help reduce the deficit. The gradual removal of subsidies has helped reduce the budget deficit as a proportion of gross domestic product to 3.3 percent by 2009-10 from 4.2 percent in 2008-09 and 7.4 percent 2007-08. An adjustment in fuel prices in international market has made it possible without putting the burden on the citizens of Pakistan (Consumer as well as businessperson).

While we talk about easing the life of the people the budget should be aimed to provide targeted subsidies for the very poor, the farmer etc. For the purpose the utility stores system may be made effective by giving funds. Government may impose new taxes on import of non-essential and luxury goods, especially on luxury vehicles; or it should be banned to avoid negative impact on balance of payments. It will help fill the big gap between our imports and exports. Similarly the government must also pay attention to enhancing traditional and non-traditional exports and as well as introducing Pakistani goods in foreign markets. There is a lot that needs to be done to improve the marketability of these goods.

Pay raises, at least equal to the inflation, should compensate salaried persons. Minimum wage which government rose to Rs. 6000 last year should be enforced effectively. It should be fixed at Rs.9,600. The reason being, as per World Bank definition, people living below $1 a day are extreme poor. Assuming $1=Rs80, for an average family size of four members it turns out to be Rs.9,600. In addition, the minimum pension should be at least Rs.5,000.

Industrial sector be given incentives like chemical, fertilizer, textile industry is also facing capacity constraints and it needs incentives. These incentives must be attached with assurance of increased growth and hence increased contribution in GDP by these sectors. Giving incentives to farmers and having more focus on agriculture may help us rationalize the impact of economic slump throughout the world. We may be able to overcome food shortages. It will also help us reduce our import of various agricultural products for our own use.

Government should also concentrate on power generation projects as the shortage of electricity is having adversely bad impact on GDP growth. Government may focus on less expensive and locally available resources for power generation. For example coal, solar energy and wind turbines.

To meet Millennium Development Goals' (MDG) target of reducing poverty to 13 percent by 2015, government should encourage microfinance in both public and private sector. It will have dual impact of reducing poverty as well as unemployment by self-employing the people. Defense spending may be increased at the same rate to 318.7 billion rupees in 2009-10 from 296.07 billion rupees in 2008/09, compared with 275 billion rupees 2007-08. Although war against terror requires an enormous raise in defense expenditure, current situation calls for attention towards other sectors also to boost GDP growth rate, which is around 2.5 percent.

Spending on education should be increased by a greater proportion to meet one of the MDG targets of gradually moving towards 100 percent primary education by 2015. Secondly, increased focus on higher education should be given and instead of cutting down the funds for HEC, higher education be given more significance on emergency basis. This funding should be allocated to the sectors where experts are needed to be produced for industries.

Therefore, to balance the expectations of people and limitations of government the taxes on electricity and other utility bills should be reduced. These are putting huge burden on the people. For the purpose, the margins of electric supply companies should be reduced. For its revenues, government should focus on taxing the elite tax class, e.g. real estate. This budget should be taken as a confidence building measure and the tool to boost national harmony between the provinces by giving due share to the provinces.

(The writer is the lecturer, Defence Authority College of Business PhD fellow, Department of Economics, University of Karachi)