Budget: nothing to write home about

From the perspective of long term sustainable growth, Pakistan’s critical deficits lie in the social sector


Dr Pervez Tahir June 02, 2016
The writer is a senior political economist based in Islamabad

The federal budget being presented later today is remarkable for a number of extra-budgetary reasons. It is for the first time in its bumpy political career that a PML-N government will be presenting its fourth budget. During this period, it has had its share of luck. The oil price crash enabled it to keep inflation as well as the current deficit low, besides reducing power subsidies without hurting too much the yield from this most taxed item. There was also the IMF standing by to chip in for the repayment of its past lending. So keen was this otherwise stern-faced institution in recovering its dues that it looked the other way whenever it was time to force its foot down on economic reform. This was particularly so when it came to tax reforms, the Achilles’ heel of budgeting in Pakistan. It was not all a blessing, though. The IMF’s opposition to subsidies and support prices may have led to the negative growth of agriculture for the first time since 2000-01.

To the good fortune of the budget-makers, the run-up to the budget was dominated by events that diverted public attention away from it. In mid-April, the leaked Panama Papers brought the issue of misuse of public authority for private gain into the public discourse with an intensity unknown to this country. It was followed by the Noshki drone attack of May 21 that led to perceptions of a gap between the stances of civilian and military leaderships. Finally, the news of the prime minister’s open heart surgery overshadowed the traditional pre-budget meetings of the National Economic Council and the federal cabinet. Not surprisingly, there were fewer pre-budget seminars than is normal during this time of the year in Islamabad, Lahore and Karachi (Peshawar and Quetta are not known for such activity). At one such show in Islamabad, the finance minister got lucky again to have been accused of figure-fudging by a person who, in the service of a dictator, had himself converted this act into an art form. It was a case of chor machai shor.

So far as the budget is concerned, these are not interesting times. There is nothing to write home about. One will see the incurable Federal Bureau of Revenue increasing its reliance on withholding taxes. This sleight of hand turns even taxes into indirect taxes. Tax rates will go up here and there to burden those people even more. The tax base is far less likely to expand to any level of respectability because vested interests are too strong. Development, and thus growth, is still subject to the size of the fiscal deficit determined by the IMF. In the IMF theology, a lower fiscal deficit frees greater credit for the private sector to invest. While the fiscal deficit is half of what it was in 2013, the flow of credit to private fixed investment is nowhere near the desired level.

In the public sector, the Zarai Taraqiati Bank used to be the largest player with an effective outreach. The institution has been rendered a lame duck under the influence of neoliberal economics. Poor access to credit was another big reason for agricultural failure in 2015-16.

From the perspective of long-term sustainable growth, Pakistan’s critical deficits lie in the social sector. The returns are the highest in school education, primary and secondary health, and what used to be called public health. These are provincial subjects. One has to wait for the provincial budgets to see what, if any, serious measures are being proposed in these areas. As of now, a large chunk of provincial resources is shown as surplus to keep the overall fiscal deficit of the country within the limits set by the IMF.

Published in The Express Tribune, June 3rd, 2016.

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