NUMBER CRUNCHING NOT SO HARSH
June 13 - 19, 2011
Budget 2011-12 is unveiled. The number-crunching does not seem to be as harsh as one could have expected. There is a bit of substance in it to impart strength to a trembling finance minister - budget presenting in Pakistan is one hell of a job - to make his effort look as plausible as possible. What should have been more invigorating to the FM and his team was that the revenue plan B - sans RGST - was made part of the budget.
It is not known if the IMF has acquiesced to putting RGST on the backburner or the government has decided to stay away from the remainder of the SBA program. Whatever the case, the FM appears to be on the winning side, at least for the time being. The issue of tax on agriculture was doomed from the very start as the president, the prime minister and, to some extent, the finance minister himself, all belong to the privileged feudal class. The raucous and rumpus created in the parliament suggested that the neo-democrats needed a short refresher course on democracy.
The budget, as usual, is supported with the statement of FM wishes and intentions, formally described as budget objectives. Our memory is still fresh with the statement of similar objectives inscribed on the cover-page of last year's budget. An interface between the two sets of objectives will not be out of place.
STATEMENT OF OBJECTIVES (FY11 AND FY12)
S.NO OBJECTIVES OF BUDGET
OBJECTIVES OF BUDGET
1. To protect the economic recovery To protect the economic recovery 2. To control the inflation To check the inflation 3. To achieve self-reliance through domestic resource mobilization To achieve a measure of self-reliance through better domestic resource mobilization 4. To reform and enhance social protection regime through waste elimination and targeted subsidies waste to allow rapid poverty alleviation. To reform and enhance social protection regime through better schemes, better targeting of the subsidies for the needy and eliminating 5. To handle prudently the loss-making public sector organizations (PSEs) To reduce the burden of public sector enterprises to ensure a sustainable fiscal situation 6. - To ensure employment generation so that the economic recovery is not jobless. 7. - To make the country fertile for investment
The first five objectives are identical while the two added for the budget 2011-12 are the offshoots of objective one - meaningful economic recovery. Ironically, whatever economic recovery we have been able to achieve, happens to be the byproduct of our happy economic years - 2003 to 2007. The growth recorded during those years by our service sector, particularly finance and telecommunication, as well as commodity producing sector particularly agriculture provided sound footing to the economy to absorb pressures of global financial crisis and domestic political upheaval.
Agriculture grew during those five years at an average rate of 4.7 percent, which came down to an average of just two percent during the following three years. The floods cannot be blamed for preceding years' dismal agricultural growth. In fact, we have done everything possible to bottle up the economy during times when South Asian economies are booming. Our monetary and fiscal policies have been the worst enemies of economic recovery.
The inflation, after subsiding for a while, has started to pick up again to reach the current alarming level of 14 plus percent. The FM, in contradiction to his statement, has not been able to stop the government from borrowing lavishly and spending more lavishly. He has not been able to pursue the government and the SBP to loosen its monetary stance as it has admittedly caused more harm to the economy than any real good. This remark might appear to hurt the 'autonomy' cause of our central bank. But then, has the central bank ever been autonomous?
During Mushraf/Shaukat Aziz turn, a low-interest-rate regime would never have existed without the SBP subservience to the government policy directive. Our fiscal and monetary policies are a big hurdle in the way of domestic resource mobilization. It takes long term planning to make use of domestic economic strengths and unfortunately, long term planning is anathema to our democratically elected governments. First half of their term is spent in dismantling the economic policies of their predecessors and in creating jobs for their party men. The other half is spent in making preparations for the next elections when their attention is diverted to their vote bank and they seem interested in doing something special for them even at the cost of economic damage to the nation. Most of the time they are seen grappling with the opposition and struggling to save their fragile alliance or conspiring to ditch some of the alliance members to induct new ones. So, economic planning is not their cup of tea. Our domestic resources remain untapped and unused. It is not surprising if attempts by the alien buyers are made to acquire these resources through shady deals and at a much cheaper price.
The fragile social safety net Pakistan economy is saddled with can never guarantee poverty alleviation. While 'targeted subsidies' is a genuine option, the idea of implementing it through cash transfers is not workable in a corrupt political environment. Subsidies worth Rs229 billion have been withdrawn without any allocation to an alternative relief package system. Most of the subsidies pertained to the power sector. Wheat and sugar subsidies worth Rs21 billion allocated to Utility Stores and Trading Corporation of Pakistan have also been withdrawn. These measures are going to unleash a fresh wave of inflation. The size of Benazir Income Support Program has been increased from Rs35 billion to Rs50 billion with a provision to further increase it to Rs65 billion. Cash transfer schemes can be successfully implemented in highly documented economies. In an unorganized economy, such schemes open corruption floodgates. Moreover, a political party, seeing the next elections around the corner, is highly likely to spend such funds - BISP - to woo its voters.
During one and a half year of his tenure, the FM has hardly done anything either to restructure or to privatize the loss-making giants of PSE sector. The reason is simple. These organizations serve as placement channels for the political bosses of the country. Appointments in these organizations are made purely on political grounds. The loss bills these enterprises have been generating year after year have created a huge dent in the economy. Anyway, political exigency demands of the FM to keep his hands off these organizations. One is reminded of the euphoria created over the blocking of 'unscrupulous' sale of Pakistan Steel Mill during the last government. Irrespective of the price we were getting then, we could have at least saved another Rs100 billion the PSE has afterward registered as fresh losses.
Even if we take them with a pinch of salt, the following remarks of Shahid Javaid Burki on the budget can shed ample light on the objectives stated by the FM and their expected fulfillment:
"It will not revive economic growth, not reduce the dependence on foreign flows, not reduce the incidence of poverty nor lessen the gap between the rich and the poor, and not help to integrate the economy with rest of the world. Something better was expected from a team of this talent and experience."