Finance Minister Abdul Hafeez Sheikh has unfolded the budget of Pakistan for the year 2011-12. In Budget 2011-12 the main debating point is, how the government handles the huge fiscal deficit and the degree up to which the economy boost. According to the estimates, the budget outlay for the coming year is set at 2.767 trillion rupees ($32 billion) i.e. 14.2 per cent greater than last year. The total budget amounts to Rs. 3.7 trillion, out of which 933 billion is expected to go to provinces while 2.7 trillion would be for federal allocation.
The security related expenditure has been raised by 15 percent to Rs 835 billion. The huge sum of Rs 786 billion consumed by interest repayments on public debt does not include repayments of the principal amount, funds for which will be financed through local and external borrowing. It is also surprising that no provision has been made for the repayment of IMF loan installment becoming due in February next year. Fiscal deficit is being targeted at 4.3 percent of the GDP. This is what has been agreed to with the IMF. The proposed budget has an allocation of Rs.730 billion Public Sector Development Program (PSDP) for the year 2011-12. The federal component of the PSDP is Rs.300 billion, while the component of provinces is Rs.420 billion. Defense budget is around Rs 495 billion.
The budget deficit has been estimated at four per cent of the GDP, or Rs. 850 billion. Recommendations have been given for a 15 per cent increase in government employee’s salaries. Tax increased to 17% from 16% on fertilizer, machinery, tractors, plant, machinery and pesticides; Exemption withdrawn and 17 percent tax imposed on buses, trucks, dumpers, trailers, prime movers and road tractors Due to massive dwindling of foreign inflows, economic managers have faced with the difficult choice of relying heavily on domestic borrowing to bridge the fiscal deficit of more than 4 percent of GDP in the next fiscal year 2011-12. For some reason, the Budget is silent on specific poverty figures, but low GDP growth, decrease in income, rise in unemployment, are clear indicators that poverty has swelled to an unmanageable level. Yet, at the same time, it has been claimed in the Budget that per capita income has risen to $1,254 which is absolutely misleading.
Agriculture growth has gone down at 1.2 percent in 2010-11 against the target of 3.8 percent, Nothing special; No clarity on direction or future vision and it is totally directionless budget, for whom, why and what is the impact. The current budget is no different from previous budgets presented during the last three years. Mr. Hafeez Shaikh, in his short budget speech highlighted the same old trade deficits and the same old missed export targets and the same old difficult economic conditions. Enhancing revenues to minimize dependence on external finances, cutting down the government expenditures, enhancing growth through a new growth strategy and job creation have not been featured in the budget.
In the last 3 years, essential commodities including petrol prices have shot up and the Government instead of controlling inflation, is rather making people habituating to it. The poor people are not beggars to get Rs.1000 per month of BISP which even does not suffice to meet the vegetable inflation cost per month. Think on taxing the political assets and privileged classes who earn 10 folds more than employed persons and still don’t pay tax. As usual Taxes are readjusted/ imposed to be collected from the poor. Rich once again remains inadequately taxed or untaxed. The budget has brought no cheerful news to most of Pakistan’s toiling masses. The power rates have already gone up and will increase in the months ahead. Gas prices are slated to rise; it may also be denied to domestic consumers this winter. The economic mangers of the government have tried to fool the masses by twisting the figures.
The percentage of inflation is much higher than what is projected at the national level by the Government. For common man, inflation means rise in the prices of wheat and flour. The poverty-stricken people are committing suicides in the country at an alarming rate. The Pakistan Government failed to provide employment to its vast population. Controlling inflation and taking a stand on disinvestment of loss sustaining public enterprises is not found on the cards with some solid proposal, and any opinion on implementation of Direct Taxes Code replacing the inflationary Indirect Taxes has been shown. To pull up some socks budget has taken some commodities and services presently free of excise duty to tax regime further fueling the already high inflation prevailing in the country.
What Pakistan needs is a radical new approach towards the economy. Pakistan’s strengths lay in its huge agricultural landscape and its mineral resources. No positive suggestion is available in the budget regarding measures to expand the economy. Pakistan’s economy (GDP) is $164 Billion, Israel and Singapore with populations smaller than Lahore have economies larger than Pakistan. Pakistani budgets follow no consistent policies and the poor continue to get poorer. Interesting things to watch out is that the budget has not addressed the cause of fiscal consolidation, rather than launching worthless schemes. The Budget does not speak something on how we will overcome energy deficit and how we align our industries on to alternate technology to bring about inclusive growth.
Most of the industries have remained sick for many years but there is nothing in the budget to rehabilitate them. If they become operational there may not only be job opportunities but it may increase the supplies of goods in the country. Pakistan should have a budget that can fund an agricultural led industrialisation. Such a policy will allow Pakistani industry to cater for its agricultural strengths and at the same time allow it to convert its immense minerals into material that can drive an industrial revolution in the country. This in turn will create millions of jobs and increase national wealth.
Inflation cannot be brought down merely by fiscal measures, although they are very crucial. No significant proposal have been made in the Budget to overcoming the energy crisis, improving security situation, lowering of interest rates, reducing the cost of production and increasing exports, in the absence of which we cannot expect to achieve and sustain a higher growth rate in manufacturing, services and agriculture.
The Budget this year has aimed no focus on inclusive growth and ensuring food security. There is nothing in the budget improving investment climate, strengthening infrastructure and fiscal consolidation. No steps can be seen in the Budget to control the emergence of double digit food inflation badly affecting the common man. The Government should have set in motion steps to bring down the inflation and ensure better management of food security. The current system sucks all economic activity out of the economy as it is not a budget for Pakistan, but a budget for a few opportunist politicians at the behest of the IMF and the US. The current system in Pakistan will continue to fail the people as it is designed to cater for a handful of elite.
IMF is influencing Pakistan to maintain a “vigilant” attitude on monetary policy in order to avert a stimulation of inflation. “The relaxation of the fiscal policy stance, electricity tariff increases and the rebound in oil prices will add to inflationary pressures. Moreover, the present round of wage increases in the public sector, if not managed properly, may trigger an economy-wide realignment of wages, with attendant effects on inflation and competitiveness,” said the IMF in its report. Currently, shaky business environment, the food & power shortages and rising prices are putting an extra burden on the economy. Formulation of an appropriate policy is not as important as its successful implementation; however it is a bit hard job for State Bank of Pakistan to achieve its monetary policy targets in the current economic situation.
Nowadays, Pakistani economy is under the heavy burden of macroeconomic imbalances with extremely high foreign and domestic debts, high budget and current account deficits, low foreign exchange reserves, high inflation, high nominal interest rates and low economic growth. The average economic growth over 40 years is around 4 per cent.
Thus, the main focus of any policy should be to achieve a sustainable growth pattern. However, due to various macroeconomic imbalances such as: high budget deficits, extremely high indebtedness, low savings and investment rates, lack of fiscal discipline, undeveloped financial markets, unstable exchange rates along with high population growth and huge defense expenditures made this task almost impossible.
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