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THE RIGHT LESSONS

For the fifth consecutive year the forthcoming budget would yet again disappoint the people of Pakistan. It is not that the budget would contain some anti-people measures but due to the fact that budget may not reduce the economic miseries of an ordinary citizen at all.
Historically, people in Pakistan keenly wait for budget announcement. Any change in tariffs, oil, petrol, diesel, gas and sugar prices, etc., would merit a lengthy debate in the parliament forcing treasury benches to work hard to defend their positions.
However, most of such issues are beyond the ambit of federal budget now. Regulatory authorities such as National Electricity Power Regulation Authority (NEPRA) and Oil and Gas Regulatory Authority (OGRA) are changing the energy prices at their own will whereas commodity prices are being determined by market forces. Thus, for many, budget is simply an irrelevant exercise.
On the other hand, it is indeed a tough time for PPP-led alliance government. In the run up to next elections they are bound to take some populist decisions for which they simply don’t have the economic cushion. In order to bring macro-economic stability, they would have to take some candid decisions such as withdrawal of subsidies of power sector which would further decrease their popularity.
I am never a great fan of IMF, however, if the people of Pakistan are facing such difficult economic situation then it would be better to adapt, in letter and spirit, some of the conditions — or so-called home grown solution — of IMF’s last stand by arrangement (SBA).
Bringing power sector reforms, restructuring state-owned enterprises, documentation of economy through reformed general sales tax (RGST), and conversion of non-targeted subsidies into targeted subsidies would have not only brought macro-economic stability in the country but have also pleased the IMF to whom we may have to contact for another SBA very soon.
Although some of the above-mentioned steps would have hit the common masses badly, but the masses are, in any case, hit badly in the absence of these measures. Moreover, achieving macro-economic stability seems to be a dream now. Hence, to me ours is a classic lose-lose situation where both the people as well as the government of Pakistan seem to be losers.
Budget preparation must have been a tough exercise, especially when in the current fiscal year, almost all economic targets, including economic growth, investment, savings, exports, imports, tax to GDP ratio, current account deficit, inflation and fiscal deficit will be missed.
The total tax and non-tax revenue (for federal and provincial governments combined) would form around 12.2 percent of our GDP whereas the total expenditures (current and development expenditures combined for federal and provincial governments) would hover around 20 percent of the GDP. This means a fiscal deficit of around 8 percent which is double the target of 4 percent set for this fiscal year.
The country is also facing current account deficit and balance of payment problems. We have to pay 1.2 billion dollars to IMF as debt repayment. On top of it the import of oil (which is consumed to produce 39 percent of our electricity), edible oil, and fertilizer at increasingly increasing prices would drain our foreign exchange reserve (FER).
One estimate says that from US$14.8 billion at the end of June 2010-11, the FER would drop to US$10 billion by the end of current fiscal year. The current account deficit may shoot up to $4.5 billion against an official forecast of $1.4 billion. On top of these macro-economic indicators, our performance on energy sector is extremely disappointing. The energy has not only turned expensive but is simply not available, affecting all walks of life.
Ideally, the budget should take care of these imbalances. However, looking at the priority areas of spending approved by National Economic Council and the Annual Plan Coordination Committee, I am not very optimistic that a lot would happen on renewable energy generation front; on change in energy mix; or on supporting the sectors which are vital for enhancing our export and contributing economic growth of Pakistan.
Public Sector Development Program (PSDP) is the main instrument to channelise funds for socio-economic uplift of the country. Its stated objectives are development of less developed regions and targeting pro-poor growth by increasing employment and leveraging opportunities in rural and urban areas. However, the way our development priorities are determined create many doubts that PSDP would deliver.
In fact, PSDP is a medicine, policy makers are the physicians, and the physicians after diagnosing the disease are not prescribing the right medicine so the end result is more pain and agony for the patient (people of Pakistan) waiting for some relief. This is not something peculiar to the current government but a systemic problem that we as a nation are facing for the last many decades.
Most of the approved schemes in the next year’s PSDP are for brick and mortar expenditures rather than bringing any meaningful change. Let me quote the priority areas for four vital ministries which if work in right direction can change the destiny of Pakistan. I am talking of human rights, climate change, food security, and petroleum and natural resources.
In order to improve the situation of human rights, rupees 30 million have been allocated for construction of two working women hostels in Islamabad for Ministry of Human Rights. There is a forecast of floods in the months of monsoon but out of the 150 million rupees schemes from Ministry of Climate Change there is no allocation for climate change adaptation. Rs. 200 million would be spent to construct a Petroleum House out of the Rs. 235 million schemes for Ministry of Petroleum and Natural Resources.
Despite the public announcement of Prime Minister to allocate funds for Zero Hunger Program under which children in 45 most food insecure districts were to be provided free lunch at public schools, and special ready to use nutritious food supplements were to be distributed among breast feeding mothers and pregnant women in these districts, there is no allocation for zero hunger program in Ministry of Food Security’s PSDP.
So, this is how we would be working for pro-poor growth in election year. Like always, the other three components of current account expenditure i.e., debt-repayment, defense, and day to day administration would take a lion’s share and the fate of people of Pakistan would remain unchanged.
The federal budget may not provide any concrete answer to the plight of common Pakistanis, but the minimum we expect from our rulers is an assurance that they are learning from their mistakes and are ready to redefine their spending (and revenue generation) priorities in favour of ordinary citizens. Budget speech and budget session is a litmus test for political maturity of our elected representatives.

This article was originally published at: The News

The opinions expressed in this article are the author's own and do not necessarily reflect the viewpoint or stance of SDPI.