Budget and development priorities

Pakistan fails to link budget with long-run objectives, is trapped in year-to-year goals

Dr Abid Rashid Gill July 05, 2020


According to the theoretical knowledge of economic planning, fiscal budget is a short-run economic plan of revenues and expenditures of a nation. It paves the way for mid-term targets and long-run economic plan of the country.

The objectives and goals of the long-run economic plan are dissected into mid-term and short-term economic plans. The fiscal budget is, therefore, the reflection of long-run as well as short-run economic priorities of a nation.

Nevertheless, Pakistan like other developing nations has failed to link its budget priorities with long-run objectives and has been trapped in year-to-year goal settings.

Although its economic woes require a huge investment in long-run projects to increase productivity and competitiveness of the economy, this task, however, cannot be achieved by drawing short-run fiscal plans such as providing subsidies and tax rebate to various industrial groups.

These groups, in turn, have developed the habit of earning from rent-seeking opportunities and favourable government policies. They do not invest in skills development and plant upgrading, and as a result, remain uncompetitive in global trade.

The budget for fiscal year 2020-21 also seems to have fallen prey to short-run priorities. Following considerations have made it impossible for the federal government to provide cushion for long-run development projects.

First, the past democratic governments mostly invested in projects that were popular, visible and could give immediate return to support their political gains. Investment in skills development, knowledge promotion, health sector and infrastructure projects that yield return in the long run, was given least priority.

Ruling political parties invested injudiciously and violated the fiscal discipline, especially in last years of their rule. Resultantly, when a new political party came to power, it inherited a huge fiscal deficit and had to opt for International Monetary Fund (IMF) loan programme.

This is what we observed in 2008, 2013 and 2018 when the Pakistan Peoples Party (PPP), Pakistan Muslim League-Nawaz (PML-N) and Pakistan Tehreek-e-Insaf (PTI) respectively took charge.

When a country is under the IMF programme, it loses its liberty to frame the budget keeping in view its long-run development priorities. The IMF stresses the need for fiscal consolidation through increased taxes and reduced spending. The current PTI government is under an IMF programme that is not allowing it to invest freely in critically needed long-run projects aimed at achieving technological breakthrough and skills development.

Resource distribution

Second, after the 18th Amendment to the Constitution, the National Finance Commission (NFC) Award does not leave much room for the federal government to invest in development priorities.

Tax income of the federal government is distributed with the ratio of 57.5% and 42.5% between provinces and the Centre.

After payments for defence needs, debt servicing and current expenditure, the federal government will face a serious challenge to finance long-run development projects.

Under the existing NFC arrangement, the provincial budgets are more important as they have more resources and subjects to address.

In the current chaotic situation, the preparation of provincial budgets requires more input from academic researchers. Provinces should have their own industrial and agricultural policies and should invest in skills development and technological upgrading to make the economy competitive.

State units

Third, the huge losses of public sector enterprises (PSEs) including Pakistan International Airlines (PIA), Pakistan Steel Mills (PSM) and Pakistan Railways (PR) are another drain on resources of the Centre.

According to a report by (Imran Kundi, 2009), PSEs eat up Rs400 billion every year as successive governments have failed to revive these ailing enterprises. This money can be utilised to invest in critically needed development projects aimed at socio-economic uplift of the nation.

Fourth, the current budget has been made when Covid-19 has hit the country badly. Typically, the lockdown of one month causes a loss of 8% of gross domestic product (GDP).

Luckily, the agriculture sector that contributes 20% of GDP has not been much affected by the pandemic, though manufacturing and services sectors have been impacted badly.

The government needs to support these sectors to kick-start the economy. Financing for this purpose cannot be collected from the economy at the moment, rather the government has to rely on international financial institutions such as the IMF, World Bank and Asian Development Bank.

Following in the footsteps of other governments around the globe, Pakistan’s federal government must announce special fiscal incentives for the industries that have been affected badly by the coronavirus pandemic.

Lacking focus

This budget is, therefore, termed a “corona budget”, focusing mainly on reviving the economy. The federal government, in the budget, does not have resources and lacks focus on long-term projects.

Pakistan needs to invest its scarce resources, like in projects that can create economic competitive advantage and promote international trade. This task can be achieved through mid-term and long-term projects, targeting skills and infrastructure development.

In the budget, the government is mad to achieve the short-run goal of reducing the twin deficit - current account and fiscal.

It is, therefore, the need of the hour that political parties sign a charter of economic planning and development as they signed the charter of democracy. This charter of economic planning and development must have clear goals of economic development at least for the next 15 years to which all political parties must adhere to.

However, the million-dollar question is: are the political parties of the country mature enough to sign such a serious document?

The writer is the assistant professor at a university

Published in The Express Tribune, July 6th, 2020.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.