With greater focus on financial discipline, the budget for the upcoming financial year is under preparation in a somewhat murky politico-economic environment.
If the political activity is taking twists and turns in pre-election period, the current economic profile is one where twin deficits of budget and current account are said to be impinging on macroeconomic stability. It is therefore quite obvious that the task ahead is quite challenging and would need preferably broad-based consensus.
In a recently released press release, the International Monetary Fund (IMF) has warned about the risk of raising budget and current account deficits saying that these two should be given the greater and closer attention.
This simply means strong revenue enhancement measures, control over expenditure and at the same time stricter watch over imports. Adviser on finance recently told a press conference that exports had risen more than imports in February. The government will however need to ensure that this trend continues over the remaining period of the current financial year.
The fact, however, remains that budget-making for the next financial year will require a bit of tight rope-walking. A budget presented in the pre-election scenario cannot offer easy options to raise revenue or reduce expenses.
Though inflation has been low, inclusion of some populist measures cannot be ruled out. Indications are that the government present a technocrats budget which will mean considerable emphasis on balancing the books.
The choice to depend more on borrowings, domestic or external, does not offer much choice either. Already debt servicing is the highest charge on current account expenditure. It is usually claimed that borrowings are spent on development projects and not on current expenditure. Still there are limits to this source of financing and as such it has to be kept under control.
Admittedly, there are conflicting claims on the economy from the people, business community and insistence on deepening economic reforms by international financial institutions. But that is so with most of developing economies.
Pakistan has the biggest advantage of self-sufficiency in food production with a vibrant agriculture sector. With this kind of support, managing the economy should be that much easier. It seems though financial discipline has always remain the basic ground rule, it would be necessary to enforce it in the upcoming budget. At the same time continuation of economic reforms would be equally important.
The government is said to be putting together the new budget by developing a political consensus. That is a healthy sign. Here a thought crosses the mind that for much too long, successive governments, specially the one now in power, have been suggesting a broad consensus on the basic economic fundamentals. Had this been agreed to earlier, economic profile would perhaps have started showing the results by now. But better late than never.