FEDERAL BUDGET 2009-10 - PEOPLE SEEKING BAILOUT

AROOJ ASGHAR (Arooj.asghar@hotmail.com)
May 25 - 31, 2009

Federal Budget 2009-10 is in the final stages of completion these days. This budget is presented at a time when the social life of common person is adversely affected by the spiraling inflation, unemployment, and increase in the cost of production. Suggestions are sought from all sector experts and technocrats to make it more effective and result oriented. As always, policy directions and initiative have been put forth to address issues like poverty alleviation, unemployment, relief to the low-income group, provision of privileges to the industrial sector, declaring new industries as tax-free and waving off loans of the sick units about to turn bankrupt. This budget is said to be aimed at reducing macroeconomic imbalances, improving equity and efficiency of public finances, enhancing competitiveness of economy and improving social safety nets.

Government sources are claiming that this year the current account deficit would be reduced from 5.9% of the GDP in fiscal year 2008-09 to 4.4% of the GDP in fiscal year 2009-10 and further reduced to 4.2% of the GDP in fiscal year 2010-11. Measures would be put in place for improving protection of the poor and vulnerable and advancing access to social safety nets for the poorest.

Current economic scenario is loaded with high fiscal, trade and current account deficits, weak supply side of food and other commercial commodities, stagnated exports, a weak rupee vulnerable to speculative trends of market mechanism and depleting forex reserves. Together with this, increase in the price of food and other commodities in international market and the continuing saga of political uncertainty at home are formidable challenges to be faced by economic managers of the country.

This year the economic situation is extraordinarily grim and bleak therefore budget should be designed keeping in view the international financial crisis and the economic situation in Pakistan. The issue of rampant unemployment is required to be specifically addressed by encouraging growth and development of industrial sector. In fact, closure of industrial units in the wake of frequent power outages, incessant rise in mark up rates and non-availability of infrastructure have led to this immense hike in unemployment. This mounting rate of joblessness is the very root cause of deteriorating law and order situation also.

INDUSTRY

In order to cope with this worsening situation the government should assign first priority to the industry. There is a dire need for announcement of a special package for attracting local and foreign investors to invest in the industrial sector. Industrialists are demanding that the new industries should be declared tax-free for five years to promote the industrial sector. The government should also review its afghan transit and trade policy that is damaging Pakistani trade. The mark up rate should be reduced by 4-5% and for the textile sector 6% R&D facility be provided. If these measures are not taken timely, Pakistan will be left behind in the international market.

The Federation of Pakistan Chambers of Commerce and Industry have put forth their demands for the upcoming budget, which includes that the rate of tax on corporate and non-corporate sectors be decreased to less than 5%. An income of Rs2.5 million should be exempted from tax. Sales tax on pharmaceutical sector should be reduced to nil. Payment of refund should be ensured within 90 days time. The multiple system of audit should be done away with and a single yearly audit be ensured. However, most of these seem quite unrealistic and a dire cut in the government revenues.

POVERTY

There should be allocation of more funds for the health and the education sectors. GOP should introduce a system of national health insurance for public health. The proposed public works program of Rs28 billion announced in the previous budget 2008-09 in the name of the poor, could ended up being a waste, because it was not truly labor-intensive, and communities and civil society had no role in its design and implementation. It is strongly recommended to channel this money through the poverty-alleviation fund, the rural support programs, and well-governed NGOs. Benazir Income support program could not yield the desired results therefore, it should be reviewed and revised for benefit of masses.

The low economic activity may succumb to already vanishing purchasing power. The Budget FY 09-10 should stop relying on withholding tax regime because it causes people suffer because of their weak political influence and tax-evading class tends to enjoy lax tax policy of the government.

ECONOMY

In order to save the dilapidated economy from further decline energy sector should be given special attention and special policy framework should be designed for power generation. In this regard duty free import of plant and machinery is to be allowed to set up new power plants. Short-term measures to conserve energy may be announced and medium and long-term measures to overcome energy crisis may be initiated to generate hydro and thermal electricity.

Budgetary deficit can be reduced by reducing the public expenditure. Public expenditure be curtailed by around 2-3% and a life of austerity against consumption may be introduced at all official levels. Leaders of the country at different tiers of society should present themselves as role models to emulate. Revenues should be generated by imposition of tax on real estate, high profit making agriculture sectors, stock exchange business, and increase in duty on non-developmental expenditures and luxury goods. Measures may be announced to increase tax revenue by imposing CVT on real estate and stocks. High yielding sectors should be immediately brought in tax net. At present the indirect taxes are 60% of the total tax recovered which is becoming a cause of inflation. Fiscal discipline may be observed and non-development expenditure may be reduced to contain fiscal deficit. It should be brought down to around 4% of GDP. Import of luxury items may be restricted and tariff on raw materials be reduced for revival of industrial sector.

This year the government should give special incentives to the Small and Medium Enterprises (SMEs), Single Member Companies (SMCs) and ensure tax-free environment for the export-oriented textile industry in Pakistan. In the upcoming budget, the government has to involve the private sector in development projects, capacity building of institutions and skill development under the public-private partnership program. There has to be intensified efforts for poverty alleviation program by launching major development projects, including rural infrastructure and creating new employment opportunities. The major focus of the government should be the development of infrastructure and provision of basic amenities like roads, water, and sanitation in rural areas. Development of real economy on priority basis is to be done by focusing on tourism, dairies, electronics, engineering, fruits, transport, agriculture, etc., in collaboration with the international agencies with the objective to promote the sectors that would change the life-style of the common person in real manner. The major water projects should also be initiated in the near future to meet the water requirement, increase storage capacity, and productivity of agriculture. Concrete steps should be taken to rehabilitate, repair the existing water channels, reservoirs.

SUMMING UP

Economy is facing a difficult time due to flawed strategies pursued by the previous governments. These inconsistent and unsound policy directions could not withstand a swing in negative direction due to high cost of energy, food items, and other commodities. This year once again on the eve of budget announcement poverty stricken people expect poverty alleviation, if not poverty elimination. Unemployed ones want job openings. People want not only economic development but also social justice. These anticipations seem like a big miracle in today's challenging environment. At least we can reach a milestone by taking bold measures. Economy can be put on the road of self-reliance only by slashing fiscal and monetary imbalances.