Budget talk

Development and some relief for the people are be the two targets of the next budget – at least that is what Prime Minister Nawaz Sharif would have us believe. According to Sharif, key economic indicators have improved during the last two years, which should allow the government to share some of the benefits with the common man. The prime minister’s views on the budget came while he was addressing the federal cabinet meeting called to finalise the budget strategy paper 2015-16. As is the case each year, the PM spoke of the need to streamline the tax system to reduce tax rates while broadening the tax base. The cabinet noted the need for immediate measures to benefit people with the help of the private sector, in addition to a number of long-term mega projects. Nawaz also praised Finance Minister Ishaq Dar on meeting growth targets and stabilising the country’s economy. Expatriates were specifically mentioned while the decrease in discount rate was expected to increase investment in the country. The minister of commerce was directed to increase exports. The PM has also promised the creation of job opportunities for our unemployed youth. On his part, Finance Minister Dar pointed to the fact that the growth rate has increased, inflation has decreased while circular debt and fiscal deficit have – according to the minister – been brought under control. Ambitiously Dar has also promised to increase GDP growth to seven percent while keeping inflation down to six percent. Dar also said that foreign exchange reserves would be increased to $20 billion and fiscal deficit reduced to four percent with a tax-to-GDP ratio of 13 percent.
These are all very ambitious figures. Notably, the same day a meeting of the Annual Plan Coordination Committee announced a GDP growth target of 5.5 percent and promised a development outlay of Rs1,418 billion out of which Rs580 billion was earmarked for the federal government and Rs838 billion for the provinces. Rs150 billion out of this amount has been allocated for the China-Pakistan Economic Corridor, which will be a major component of the government’s development strategy. The major increase was on the side of the provinces – 28.9 percent. Most of the federal money will go to running ministries and corporations such as Wapda and the National Highway Authority. Only Rs20 billion has been earmarked for social development programmes, including the achievement of the Millennium Development Goals. The good part in all this is that the committee was positive about the overall economic trajectory, including the promise of a decrease in persistent energy shortages and a better security situation. But this positive story is mitigated by a number of risks which include energy availability, extreme weather fluctuations, non-implementation of envisaged reforms programme and fiscal profligacy. The committee also noted the need to solve the structural issue of circular debt. Most of the growth is expected in manufacturing and the services sector while agriculture is set to experience limited growth. The budget strategy has envisaged a wide expanse of developmental measures. One will need to read the fine print to see if the promise of providing relief to the common man will be fulfilled, or if the benefits of economic stability will go to external investors and local elites.