Budget as usual

FOCUS

“IFOCUSt was a copy and paste budget,” was the subtle reply of a banker when asked about his opinion about the budget, the fifth and probably the last budget of the Pakistan Muslim League-Nawaz (PML-N) government, presented by finance minister Ishaq Dar in the parliament last week.

In Pakistan, the majority of people and even policy makers consider the budget as a document detailing statistics and data of incomes and expenditures of the government for a year, but in fact it should be a strategy by the government on how to tackle economic challenges faced by the country in the next year and beyond.

Like his previous budget speeches, the speech of the finance minister this time around too opened with a long narration of what was the state of the economy when he took over the reins of the finance ministry in 2013, and how he brought about a “a major turnaround”.

There is no doubt that the economy has come a long way from what it was in 2013 when it was on the brink of a default, and credit must be given to the finance minister and his team for salvaging the economy from that disaster as all macroeconomic indicators are now showing very encouraging trends.

After prudent management of four years, the government is all set to achieve 5.3 percent of GDP growth in the current fiscal year, which though was lower than the target, was still highest in the last decade.

Inflation has been significantly contained, though lower oil and commodity prices in the international market too have a major role in it.

The foreign exchange reserves which were at a very dangerous level in 2013 have now been built up to a comfortable level and are sufficient to cater for up to four months of imports.

There has been remarkable fiscal discipline which helped in containing fiscal deficit which right now is 4.2 percent of the GDP.

These achievements made finance minister boast in his speech that the country is way ahead of the situation when it was on the verge of default and now stands on the “cusp of high economic growth trajectory”.

While one must give credit where credit is due, the economic managers should keep in mind that it is not for the first time that Pakistan has made these achievements.

During the government led by general Pervez Musharraf, Pakistan was at the cusp of high growth trajectory too as at that time all macroeconomic indicators were showing very positive trend –some of them were even higher than the current ones. But like a house of cards, all those gains were lost within no time because of factors well known to everyone in Pakistan.

What is the guarantee that achievements made by the current government are durable and they would not be squandered this time as has happened before?

While it is heartening to see that despite all weaknesses the democratic process is working in Pakistan, which hopefully in the long run would ensure political stability in the country, there is still a dire need for a political consensus on vital economic issues to ensure economic stability.

The finance minister is very justifiably arguing that there should be a ‘charter of economy’ on the pattern of charter of democracy in the country in order to ensure economic stability.

“We should pledge that there should be no politics on economic issues….economy and politics should be separated,” he said in his budget speech, though later in a television interview he was reminded that the PML-N while in opposition had played politics on economy and had opposed enforcement of Reformed General Sales Tax (RGST) by the previous Pakistan Peoples’ Party (PPP) government.

Observers say that though the finance minister eloquently highlighted the achievements and performance of his government and economic team, he failed to mention the challenges, even in passing, faced by the economy of the country.

GDP growth has passed the five percent mark for the first time in ten years, but it is also a fact that the country has recorded highest current account deficit in the past decade or so too.

The current account deficit is expected to end up at $8.5 billion by the end of the year as against 2.5 billion dollars last year.

The imports have shown an increase of over 40 percent, while exports have miserably failed to pick up despite the lucrative package announced by Prime Minister Nawaz Sharif for the textile industry – which account for more than half the country’s exports and 40 percent of manufacturing jobs – in January.

The government spin doctors have been telling the people that high current account deficit should not be a big cause of worry, as it shot up because of machinery imports, and the trend would be reversed once this machinery was commissioned and installed and started spurring exports and growth.

However, vibes from the textile and industry sectors are not encouraging. Observers say many of the big industrialists of the country have started putting their money in the real estate business to make easy money.

Such a situation should be a cause of alarm for the government as Pakistani exports are already loosing regional and international markets to their competitors – Bangladesh and India – and lack of interest by industrialists and exporters in their own industry would mean that Pakistan’s share in the export market would shrink further.

The worried industrialists have called on the government to take more steps to regulate real estate business in the country in order to plug the sources of easy money making so businessmen should concentrate on the development of their own sectors.

Analysts say the government needs to focus on finding new sectors to expand the economy but it should not lose sight of traditional sectors of the economy, particularly agriculture – which was the backbone of the national economy.

Last year, agriculture posted negative growth which was the main reason behind below target economic growth. This year, agriculture is showing a normal growth, but it still has the potential to produce higher growth.

Despite recovery in the agriculture sector because of the incentives package announced by the government last year, farmers believe they are being ignored, which was evident from the fact when a large number of farmers, mainly from Punjab – the food basket of the country – converged in Islamabad on the budget day to stage a protest demanding more relief in the prices of fertilisers as well as electricity charges.

In order to spur industrial growth, the government has announced zero load shedding for industries, but no such incentive has been announced for the agriculture sector. Observers say though agriculture sector is showing signs of recovery, this turnaround is not very encouraging for the country’s traditional crop.

Pakistan has been the fourth largest producer of cotton in the world after China, India, and the United States, but recent trend shows that cotton growers are increasingly switching to sugarcane crop as it earns more profit needs less labour.

Analysts say the government has shown little interest to salvage the country’s traditional crop, as almost the entire political elite of the country has its stakes in the sugar industry.

As generally expected the budget for the year 2017-18, which is the last fiscal year of the PML-N government - was an “election budget”. The government is eyeing a win in elections due next year.

The government has earmarked an unprecedented allocation of over Rs1,001 trillion for Public Sector Development Programme (PSDP) while maintaining unrealistic restrictions on expenditure.

Some analysts worry that the government might either resort to more borrowing or introduce “mini-budgets” to meet its expenditure, both of which are detrimental to the economy.

They say that though the government has set very ambitious targets of revenue collection, if the poor record of performance by the Federal Bureau of Revenue is any guide, it might end up in missing those targets which ultimately require the government either to borrow or impose more taxes on poor people.

Since the government would try not to upset the people in the election year, it would most probably resort to more borrowing which would further pile up the debt burden.

The finance minister in his speech did repeat the tall claims that electricity shortages would be overcome by next year, but he did not unveil his government’s schemes to address deep-rooted problems of the energy sector.

Circular debt is the most serious problem right now for the energy sector. Soon after coming into power, the government cleared the whopping Rs480 billion in one go, but it has rebounded very strongly. It is feared that the circular debt piled by the current government by the end of its tenure would be more than what it inherited from its predecessor.

The government is said to be reluctant in clearing its circular debt as it could tremendously increase the budget deficit which it takes credit to have contained to 4.2 percent.

Moreover, much of government’s focus is on inaugurating new projects for power generation to produce more electricity, while it is conveniently ignoring the fact that pilferage and losses of power sector are much serious and bigger problems than generation.

Pakistan’s electricity needs at present could still be met with the current installed capacity but it is pilferage as well as failure in the recovery of outstanding dues which are creating hurdles in fulfilling those needs.

The country’s political leadership needs to show more maturity in tackling the economic woes of the country. They need to evolve a consensus on what are the key problems of Pakistan’s economy and how could these be tackled irrespective of which political party comes in to power.

The law and order situation, which is one of the major factors for the economic progress of a nation – has improved considerably over the past couple of years because of military operations in Karachi, the commercial capital of the country, and in tribal areas, but political stability is another big requisite for the development of a country.

It is for the political leadership of Pakistan to ensure political stability. Despite numerous ups and downs, the democratic process has continued in Pakistan over the past nine years. One hopes and prays that this process continues, which would result in strengthening of the national institutions that ultimately provide an enabling environment for the economy to grow and flourish.

Mr Dar hopes that Pakistan would join the league of world’s leading emerging markets by 2030 but this dream could only be materialised if there is political stability, improved security situation as well continuation of economic reforms in the country. Otherwise it would not be more than a mirage!

The writer is a senior journalist based in Islamabad