Analysis: Growth, stabilisation and revival

The significance of finance minister Ishaq Dar’s budget speech cannot simply be analysed for what was said and not said about promises for fiscal year 2013-14, but must be located in a slightly longer historical context.

The budget speech is merely an accounting exercise announced by the government each year, which interests mainly economists and financial journalists who quibble about details and emphases, and the business community which is affected by many of the proposals. Nevertheless, this often humdrum exercise also marks a clear break from the past, or at least ought to.

Looking back over a quarter century, there are at best a handful of budget speeches which signified some form of break from the past practice of presenting accounts. The first was the 1989 budget of the first Benazir Bhutto government which marked the transition of electoral (though not democratic) politics in Pakistan after a brutal military dictatorship. However, the budget was significantly sabotaged by Dr Mahbubul Haq and Ghulam Ishaq Khan, well before any new policies could be thought through and Pakistan was trapped in an IMF programme. The second most significant budget, and probably one of the worst ever in Pakistan’s history, by Sartaj Aziz no less, must be the 1998 budget speech which came a few days after Pakistan’s nuclear tests and after sanctions had been imposed. There was complete denial about Pakistan’s impending troubles and the then finance minister turned a blind eye to what was clearly Pakistan’s biggest economic crisis.

The 2008 budget speech by Ishaq Dar could have ranked at the same level with the beginnings of democracy in Pakistan, but the significance of the effort was lost once the PMLN left the coalition. That is why the speech given by Dar yesterday has specific relevance.

This is the first government to take power from a civilian government without the shadow of a military dictator. This is also probably the first government since 1971 which thinks it will (or at least should) complete the full five year term. Not many governments in the last forty years could have felt certain of fulfilling their tenure. Given these supreme advantages, Ishaq Dar’s budget speech articulated not just its annual accounting statement, but indicated directions for a five-year vision for Pakistan’s growth, stabilisation and revival.

Probably the most important and positive feature of the budget was that this was not a populist or popular budget, giving ‘relief’ to the common man. The budget is not meant to win a popularity contest, and the PMLN government has tried to focus on fixing the overall economy rather than the purses of families or groups of people.

It has been clear from 11 May that Nawaz Sharif and his government have decided to tackle the energy problem head-on. The finance minister’s speech saying that they will resolve the circular debt problem in sixty days, albeit without going into specifics of how, while well-meaning and showing strong resolve, lacks details. Nevertheless, whether it is through profligate measures of borrowing and printing money in the first instance, if energy supply bottlenecks can be removed then economic activity will pick up and people will get some real ‘relief’. The government has made numerous suggestions about what else it will do in order to address the energy crisis, and they ought to be put in place simultaneously. With Pakistan losing 2-3 percent of GDP annually due to the energy shortfall, even temporary relief with longer term measures is a step in the right direction.

So too is the decision to announce medium term targets for the fiscal deficit, lowering it to 4 percent in 2014, down from 8.8 percent this year. Ambitious though it may sound, again, the direction and intent are more important at this stage, and one expects details later. Some small measures have already been announced, such as cutting the expenditure of some ministries and a reduction of almost 30 percent in overall expenditure. But, the devil is in the details.

Missing of course, are substantial taxation measures, especially dealing with direct taxation, the taxation of wealth, capital gains, and such like. The increase in GST by even one percent is a lazy move by the government and will add to the burden of living. Cosmetic measures such as giving laptops or giving young people loans, are better left to the provinces. Nevertheless, the intention to rebuild and extend basic infrastructure by increasing public development is also a welcome announcement. At least this government, a pro-private sector one, realises that there are linkages with public sector development projects, particularly in infrastructure.

Following on from his determined press conference after the launch of the Economic Survey two days ago, the finance minister has continued to show his and his government’s resolve in improving Pakistan’s economy. A 4.4 percent GDP growth rate for the next year is very doable even with the broad outlines provided in yesterday’s speech. However, even though one awaits far more details and specifics over the next few days, this resolve is just what was lacking over the last five years.

(Read: The Federal Budget 2013-14)


Published in The Express Tribune, June 13^th, 2013.