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Thursday March 28, 2024

Budget promises

By our correspondents
May 22, 2017

Prime Minister Nawaz Sharif has promised that Budget 2017-2018 will prioritise higher and sustainable growth. Compared to the PML-N’s first four budgets, which were mainly geared towards damage control and basic macroeconomic stability,      the government has said that the coming budget will prepare the economy for sustainable growth. Like much of the PML-N’s budget promises, this might be too much to hope for. Basic economic indicators such as tax collection, forex reserves and stock market performance may have improved, but the economy has continued to show major weaknesses. Falling exports, an increasing trade gap, low levels of local and foreign investment, power shortages and a weakening agricultural sector all tell a much more worrying story. Inflation has joined the mix after the SBP pointed to an increase in inflation and the government itself has predicted that it is budgeting for six percent inflation next year. The government may be pushing CPEC as the panacea to all of these problems, but it is clear that the project will offer little to remedy these serious issues in the short term. Moreover, much of these are concerns that need to be resolved by government policies, not through the creation of a new trade corridor and new power plants.

Finance Minister Ishaq Dar has indicated that the government will pledge six percent economic growth next year, which is half a percentage point higher than what the IMF and World Bank had consented to. Three major sectors will need to be addressed if the growth targets are to be met: power, exports and agriculture. Pakistan has been suffering on all of these fronts – and improvements are crucial in the short term to prevent irrecoverable damage to Pakistan’s industrial and agricultural base. The government has put forward special packages for both of these sectors, but this approach – which offers tax breaks and low-interest loans – is a stopgap arrangement and does not address structural weaknesses in the sectors. It is unlikely that any serious thought has been put into resolving these issues. Pure economic growth must also be coupled with spending on the social sector. Once again,         the PM made clear in a meeting of the National Economic Council          last week   that most of the expected Rs2.5 trillion      development budget is expected to go into building more infrastructure, instead of strengthening the social sector. The need to focus on education, health and social sectors is an obvious one that must be repeated every time. Social development is likely to have a budget of only about     Rs153  billion this time around, which is nowhere near the spending needed to bring living standards up to the required mark in the country. Hidden within the fine print is a proposal for lifetime pensions for parliamentarians, which is likely to raise eyebrows if it makes it to the final draft. This is yet another reminder that budget makers put their interests above those of the public. With this also being election year, the government will have to get the budget right to ensure that it does not face a tough time at the polls.