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A fitting fiscal policy


April 29, 2018

Before discussing the budget for 2018-19, I would like to record my strongest disapproval of the rumpus unfurled in parliament by the opposition parties, especially Murad Saeed and other PTI MNAs. Attitudes and behaviours invariably have repercussions. It is really regrettable when a particular kind of politics encourages, supports and promotes the culture of violence, without realising that it could have a boomerang effect as far as the fortunes of its own are concerned.

Coming to the budget, the sixth presented by the PML-N government before its mandated term comes to end on May 31, looks quite promising from the perspective of the relief provided to the masses and incentives and concessions earmarked for different sectors of economy. The tax-base has also been broadened, which is absolutely essential for not only generating revenues for future developmental and social welfare projects, but also for reducing the budget deficit – the mother of all economic ills. The other good feature of the budget is that an effort has been made to lay more emphasis on direct taxes and avoiding indirect taxes which ultimately become a burden on the public. The business community has also appreciated the budget, hoping that it would spur business activity in the country.

Needless to emphasise that managing an economy, particularly of third-world countries like Pakistan which suffer from resource constraints and struggle to strike a balance between development and welfare-oriented measures, is an arduous and excruciating exercise, more so in view of the vulnerabilities of the ever changing global economic environment. Considering these factors and the state of the economy inherited by the PML-N government, it is hard to deny that the overall handling of economy has been quite satisfactory, and due to the policies pursued, the country has been winched out of the quagmire that it was stuck in 2013. Perhaps it would be pertinent to have a bird’s eye view of the state of economy then and now, to understand the difference and fathom the scale of success that the PML-N government has achieved.

There is verifiable and irrefutable evidence of the fact that the PML-N government, in spite of egregious circumstances, resource constraints, huge expenditure on the fight against terrorism and political instability fomented by its opponents, worked with unruffled focus in reviving the economy, which was almost on the verge of collapse and even faced the prospect of defaulting on IMF loans. When the PML-N government assumed power, economy was almost stagnant at three percent of GDP growth rate and the budgetary deficit stood at 8.8 percent.

Today, GDP growth rate has been enhanced to 5.8 percent, whereas the budgetary deficit has been pulled down to 5.4 percent. Above all, the energy crisis that had badly affected the industrial as well as agricultural sectors and caused inconvenience to millions of households across the country has been surmounted to a great extent, and the country is fast heading towards becoming an energy surplus country.

The foundation laid by the PML-N would surely take the country on a path to sustained development. Thus, improving GDP growth rate. Set at six percent for the year 2018-19, GDP growth rate seems quite reasonable and achievable in view of its ongoing trend of growth. Moreover, CPEC has led to an exponential increase in direct foreign investment in Pakistan, and the economists expect a two to three percent jump in GDP after projects under it are completed.

Some people doubt the sustainability of the current rate of economic growth and cite the increase in internal and external debts as the reason for it. These people feel that this increase could ultimately have a debilitating impact on the economy. While their apprehensions cannot be taken lightly, it is pertinent to point out that this argument represents only one side of the equation. This argument is normally based on the assumption that the loans obtained will not be employed on productive avenues. The fact is that almost all the countries of the world take loans to finance their development and welfare projects and these loans, if used prudently on productive avenues, not only generate enough resources to pay for themselves but also add considerably to the resource availability of the country.

It is noteworthy that during the last five years, the net debt-to-GDP ratio increased from 60.2 to 61.4 percent, which is not alarming considering the fact that the debt has also increased due to CPEC projects. But there is no doubt about the productive potential of CPEC projects to off-set the negative impact that the critics are bandying about.

Riding on the successes achieved in the economic sector, the government could afford to present a budget with greater emphasis on the measures designed to promote welfare and well-being of the lower and middle strata. The relief provided to the salaried class and pensioners by reducing the tax ratio for them, increasing the allocation for the Benazir Income Support Programme, raising the minimum amount of pension, increasing the house rent ceiling and allowance for government servants, are appreciable steps which will benefit millions of families. Equally appreciable is the reduction in the duty on agriculture and dairy items. This will benefit farmers and the ultimate users – the people. The agriculture sector has particularly been given substantial incentives.

The budget is also loaded with fiscal concessions for various other sectors, and the burden of additional taxes is minimal. The export sector has also been provided substantial relief; no wonder that the FPCCI has welcomed the measures announced by the government. The budget also projects targets for economic growth, revenue collection and reduced fiscal deficit. It has also enhanced the expenditure in vital sectors like defence. The argument of the opposition parties that the government did not have the right to present a one-year budget at the fag end of its tenure and that it was pre-poll rigging, is not valid.

Political parties all over the world give relief to people irrespective of whether it is their first or the last budget. And when it is for the good of majority of the population, why grudge it?

The writer is a freelance contributor. Email: [email protected]

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