June 25, 2001
On the face of it the new budget is very much modest showing an increase of only 7.7 per cent over what was budgeted to be spent during the outgoing year. But compared to what was actually spent during 2000-2001, the new outlay seems to have been expanded by 10.3 per cent.
This seems to have been made necessary by the need to enhance the development budget by a record 27.4 per cent compared to what was claimed to have been spent under this head during the outgoing year. And if one were to make a comparison of what has been allocated for development next year (Rs. 130 billion) against the Rs.80 billion actually spent on development during the outgoing year then you see even a heftier increase of over 60 per cent in the next year's allocation for development.
The need to enhance the development budget by such an ambitious amount seems to have been made necessary by the fact that the official economic managers and the IMF bureaucracy seem not yet prepared to accept that their combined prescription being administered to the economy for the last 18 months was incapable of reviving the Pakistani economy. And while they continue to press on with this ineffective prescription, they would perhaps like to give the nation the placebo of what great things they had planned for reviving the economy.
This was perhaps again the reason why the revenue receipts ( net) for the next year have been projected to increase by an equally ambitious margin of 16.9 per cent as against an increase of only 10.1 per cent over what was actually budgeted for collection during the outgoing year. Clearly, with the savings and investment trends remaining the same( there appears to be move in the new measure which one could take as being directed to induce an accelerated savings and investment activity in the country in the next 12 months), there is not going to be much economic activity in the country and as a result no exceptional increase in revenue incomes. And this would cause the budgetary gap to widen further making it impossible once again to adhere to the deficit target for the year.
The outgoing budget's original target for fiscal deficit was 4.5 per cent of GDP. But by the time the year came to its end, the target was revised upward with the consent of the IMF bureaucracy to 5.3 per cent. And one cannot rule out the possibility of this figure going further up to nearly 6 per cent when the final accounts are compiled as the provisional income figures are usually overestimated and those of expenditure underestimated. Similarly, the next year's deficit target too appears to be highly exaggerated. Though it is kept at 4.9 per cent but by the time the year would end, it could perhaps go up to nearly 5.5 per cent.
So, what has been happening all these months is, under the prescription of the official economic managers and the IMF bureaucracy the country's economy has been going steadily down mainly because of the formulation of the prescription itself. While on the one hand the government, in order to remain within the limits imposed by the deficit target, feels free to keep slashing the public sector development budget both relating to the economic activities as well as the social sectors, the burgeoning current expenditure which keeps out pacing the budgetary allocations by the month leave the government no option but to resort to borrowing causing in the process a total recession in the economy and burdening at the same time the economy with more loans.
In the next year the government proposes to raise as much as Rs. 57 billion additional revenues without, as the finance minister claimed, resort to additional taxation. But camouflaged within the budgetary documents are measures which do indicate that efforts had been made to increase the income not through broadening the base of the taxation but by increasing the rates of customs duties which is the easiest collection route and which also causes the yields from sales tax to go up. But then when you increase th rates beyond a limit, the measure becomes counterproductive and falls prey to corruption.
There are a number of measures in the new budget which ostensibly have been taken to restore the confidence of the investors. But all these measures would bear fruit only if the government could take in hand immediately all those infrastructure development projects which are listed in the PSDP and also those which General Pervez Musharraf announced while answering questions in his live Face the Nation TV programme on June 15.
However, in order to take in hand all these projects, the government would need billions of rupees and as many billions of dollars which it does not have and neither the new budget has the capability to earn even a fraction of the required resources. The exports are continuing to stagnate because a 7 per cent increase adjusted against inflation would appear to be no increase at all.
Similarly, imports at over 6 per cent are stagnating more which would get reflected in reduced income from import duties (a large chunk of tax revenues comes from this head) and reduced investment activities because stagnant imports mean stagnant import of raw materials and intermediaries. In fact the over 6 per cent increase in imports in the outgoing year reflects mostly the increase in international oil prices.And if one looked at the performance of the savings sector during the outgoing year, then one gets the shivers because with all the reforms and all the so-called measures to document the economy and broaden the tax base, the tax to GDP ratio is still hovering around an abysmally low level of about 11 per cent.
The official economic managers are now talking in terms of 3-5 years for their reforms to start yielding the results. The IMF and the World Bank bureaucracy as expected agrees with this for obvious reasons. But then what would happen to this country when at the end of three to five years it would find that it has gone the way the other 'IMF reformed economies' have gone? At least the present chiefs of the Fund and the Bank would not be around then to answer the question. And of course by then the present ruling elite in Pakistan would also have been replaced by a new set of ruling elite with nobody around from the older set to be held answerable for today's follies.
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