Pakistan: A disappointing budget

ALMOST exactly a year from now and a day before next year’s federal budget speech, Finance Minister Ishaq Dar will present the Economic Survey of Pakistan 2014-15. The survey will be a report card of sorts on the promises Mr Dar made on Tuesday in his budget speech in the National Assembly. Already, it is relatively easy to guess what the report card in the form of the economic survey will look like a year from now. In all likelihood, it will be a replica of this year’s Economic Survey: virtually all targets will be missed, though headline growth and deficit figures will be creeping in the right directions. For what Mr Dar revealed in his speech was a run-of-the-mill, business-as-usual, few-new-ideas budget that will stabilise the Pakistani economy in the short run, but that may also set up the same semi-boom, semi-bust cycle the country has suffered over the decades.

Assessing the quality of a budget is necessarily linked to how effectively it addresses the particular challenges the economy is facing in any given period, but there are at least three basic elements that need to be looked at always: the revenue and expenditure sides; a growth strategy; and a vision for equitable growth that touches all sections of society. On all three counts, the government has offered little of substance. To begin with, a deficit of Rs1.4tr has been targeted by the government — a large sum in absolute and even real terms, but still an improvement in percentage terms on previous years. But it is plain to anyone with even a modicum of knowledge about how the state functions and is structured that neither the expenditure nor the revenue projections will hold up. Tax revenue projections almost as a rule never materialise and the slippages will begin almost immediately — particularly since Mr Dar seems uninterested in pursuing reforms of the tax-collection machinery. And that is before the reversals on tax measures that routinely happen under heavy pressure from special interests — as happened with SROs last year. Meanwhile, on the expenditure side, with no real attempt to restructure how and where the federal government spends the money at its disposal, the inevitable will happen to keep the budget deficit in check: development outlays will be held up. It is an age-old formula.

Yet, if little can be expected on the ways in which the government struggles to balance its books, what about economic growth, the cornerstone of the PML-N’s electoral appeal? The answer to that had already come in last week’s National Economic Council meeting where a Rs1.3tr development and infrastructure budget was unveiled. But can growth really be delivered through big infrastructure projects and large-scale public spending? Where are the policies and stimulus for the real engines of employment and growth? The agricultural sector employs nearly half of the labour force while small and medium enterprises can be a real engine of growth for employment. Where were the policies designed specifically to help those particular sectors? Tax breaks on tractors and reviving tried and failed tax incentives hardly amount to coherent policy for the agricultural sector. As for SMEs, the usual smattering of tax breaks mean little. It is difficult to find much of a strategy for meaningful, sustainable and wide-based growth in the budget.

Finally, what about equity? True to form, the PML-N has offered a number of big breaks to big business and hand-outs to the less well-off. When stacked up against each other however, the differences are towering. Continue down this path for the next year and inequality will rise. A government of billionaires may like the sound of several more billionaires in Pakistan, but in a country of some 200 million with employment, income, health and education woes, will more super-rich really be good news for everyone else?