Social sector spending cuts

The government needs to prioritise its spending, far too much of our budget is eaten up by defence and debt servicing.

Here are two basic truths about Pakistan today, which taken together may seem to be irreconcilable. We are running a huge budget deficit that needs to be urgently addressed but we are going through an economic downturn so it is imperative that the government spend more to alleviate the suffering of the poor. Unfortunately, the government is failing miserably on both counts. In a recent report, the Planning Commission admitted that budget cuts to the Public Sector Development Programme (PSDP) had caused increased unemployment and worsened the power and water shortages in the country. In total, austerity measures have led to a Rs100 billion reduction in the PSDP’s budget.

Basic Keynesian economics dictate that one of the most important weapons in the government’s armoury during periods of low economic growth and high unemployment is increased spending on development programmes. By focusing on infrastructure, the government can provide employment to those without jobs while providing the country with long-term benefits through the construction of dams, roads etc. At such a time, the government needs to increase the budget of the PSDP, not slash it. Ordinarily, governments which are relying on deficit spending would need to increase the rate of taxation to compensate for the increased investment in development. The Pakistan government does not need to do that; it simply needs political will. There is no more obvious solution to our revenue needs than to simply improve tax collection. For far too long, the rich have avoided paying their share of taxes. Now that we know that the real-world consequences of these tax dodgers is reduced spending on development, it is essential that the government crack down on evaders.

The government also needs to prioritise its spending. Far too much of our budget is eaten up by defence and debt servicing. Of course, this is easier said than done. The last thing a political government wants is the military and IMF breathing down its neck. For the sake of the country’s citizens, though, the government needs to start focusing on something besides its own survival. Reversing the PSDP’s budget cuts would be a great way to start.

Published in The Express Tribune, August 1^st, 2011.