Economic growth and the budget

Finance and Planning Commission has responded with rare clarity and vision to address the economic crisis.

The budget this year has come at a moment when Pakistan’s economy is in the grips of a severe and protracted combination of stagnation and inflation. At the same time, the government is caught in an acute fiscal constraint which restricts its ability to address the crisis of recession, rising poverty and unemployment and the attendant stresses on a society in which the majority is under the 25-year age group. Yet, the government’s Finance and Planning Commission’s team has risen to the occasion and responded with rare clarity and vision to address the economic crisis.

Finance Minister Hafeez Sheikh’s speech is unique in Pakistan’s history in that it presents the budget in the context of a long-term growth framework and clearly identifies the conceptual basis of setting development priorities and controlling the budget deficit. A new perspective has been provided in terms of an emphasis on generating growth through increased productivity. However, the weakness in this vision is that for productivity to fuel growth and for the potential of the youth to become the agents of this growth process, a profound change in the institutional framework and the underlying power structure is required. Pakistan’s failure to achieve high sustained growth is because the institutional structure systematically excluded the majority of the population from participating in the process of growth. It is precisely on the basis of this exclusion that rents are generated for the elite, who enjoy preferential access over both the investment process and markets. With such a narrow base, growth can neither be sustainable nor can productivity be its catalyst. It is only when access over productive investment, high quality education and health care is available to all citizens will a broad base be established for competition, efficiency, innovation and productivity growth to place Pakistan on the path to sustained growth. There was no mention of this in the budget speech.

How can the productivity potential of the under-20 age group be unleashed, (which, as the finance minister points out, constitutes 50 per cent of the population) when most of them fester in the darkness of closed minds and rote learning that is trotted out as education.

The objective of power sector reforms and privatising loss-making public sector enterprises to plug the hemorrhaging of the exchequer is laudable. However, what should have been mentioned was time bound management initiatives that the government intends to take towards the achievement of this objective. An important requirement to control the deficit from the expenditure side is to drastically reduce the government’s plethora of redundant ministries and departments. An amount of Rs91.5 billion can be saved through this.

The approach towards a more rational allocation of development funds for ongoing infrastructure projects is finely tuned and conceptually elegant. However, the question to be addressed is what organisational and institutional changes can be undertaken for a more efficient use of resources in new development projects.

The elegant conceptual framework notwithstanding, this is a firefighting budget in that its focus is on stabilisation rather than growth.

Published in The Express Tribune, June 6^th, 2011.