13.06.2013 Budget 2013-14
Finance Minister Ishaq Dar hit all the right chords – at least on paper – as he presented the first federal budget of the newly-elected PML-N government exactly seven days after it took charge of the country’s battered economy. To begin with, the mood and tone of the budget speech should give hope and confidence to Pakistanis – from the man on the street to corporate gurus, investors and businesspeople – that the new government means business. Dar managed to give a strong signal that, ‘right or wrong’, the new government at least has an economic vision, a plan and a team that enjoys the confidence of the ruling party. This stands in stark contrast to the previous PPP-led government, which operated on borrowed economic experts who, despite saying all the right things, always failed to sell their economic agendas to the political bosses. As Dar pointed out, the economy had been on auto-pilot. Given the past five years of misrule and economic paralysis, the cohesion in the ranks of the new ruling party on the economic programme should be a source of relief. Moreover, coming up with the budget for fiscal year 2013-14 (July-June), reflecting the ruling party’s economic vision just one week into power, is in itself no mean achievement. This shows that the PML-N’s economic team had done its homework well in advance and managed to weave it into the budget plans for 2013-14, for which the exercise was started by the caretaker government. This again should be taken as a positive signal – for when it comes to the economy, often the sentiments and perceptions of the investors work as the key driving forces that help policy-makers achieve their targets. Coming to the nitty-gritty of the proposed budget – having an outlay of 3.591 trillion rupees – one can easily say that it appears realistic in its targets and remains devoid of any big pleasant, or unpleasant, surprises. The proposed budget appears to be aimed at stabilising the economy along with triggering growth with a series of steps that include, on the one hand, some massive cuts and austerity steps in the government expenditure, and on the other, a nearly 50 percent increase in the development budget to Rs540 billion rupees from Rs360 billion.
This is an attempted high-wire act by the PML-N economic team, and is also the need of the hour, for no country that has remained caught in the vortex of low growth and double-digit inflation for five years can hope to revive economic activity and push its GDP up without the public sector taking the lead through a series of big infrastructure projects. In that sense the PML-N appears to be on the right track; constructing new motorways, reviving the Pakistan Railways, building houses for the poor, completing unfinished water and power projects including new dams – these initiatives are all part of the PML-N’s plans. If implemented, as announced by the finance minister, they will not just create new jobs but play a major role in triggering growth. As expected, the energy sector, hard-pressed by the more than Rs500 billion circular debt, attracted much-needed attention of the new policymakers, who proposed to allocate Rs225 billion in the budget to fix its structural flaws and boost power generation. The budget proposed to fix the fiscal deficit – known as the mother of all troubles for an economy – at an achievable 6.3 percent of the GDP from the highs of an estimated 8.8 percent in the current fiscal year. The government aims to slash it to 4.0 percent as part of its mid-term plans. If the government manages to achieve this target it will indeed be a commendable job for which multilateral donors including the International Monetary Fund had been pressing Pakistan all through the PPP-led government’s rule. In a welcome step – in symbolic terms – of austerity, the proposed budget aims to slash the expenditures of the Prime Minister’s Office and the PM House by 45 and 44 percent respectively.
The scrapping of the discretionary funds for all ministries, including the prime minister, are also among those proposals that should be hailed. On the revenue collection side, the budget proposes to collect 21 percent more revenues to Rs3,420 billion in fiscal year 2013-14 compared to the revised figures of Rs2,837 billion for the current financial year. The government hopes to achieve this unprecedented target by taking steps that range from reforming and simplifying the tax-collection system to fighting corruption, tweaking various tax slabs and raising the general sales tax from 16 to 17 percent. Some of these plans are likely to have inflationary impact. It can be said that the budget speech did not come up with any radical steps, but despite the economic constraints and limited options, the policymakers have managed to come up with a plan that aims to set a corrective direction. In terms of setting priorities, the policymakers appear to be on track since fixing the energy sector, boosting industrial output, reforming loss-making public sector entities and attracting investment – all appear high on their list. At the start of its innings, we must wish the best of luck to the new government and its economic team and hope that they manage to translate their intentions into reality. The task of fixing the economy and putting it back on track is indeed a gigantic one and can only be achieved by setting the right policies and walking the talk. Prime Minister Nawaz Sharif’s government can make history if it does that. Let’s hope that when Dar presents the budget for 2014-2015, he manages to highlight achievements, and not wasted opportunities and missed targets, which he did this year when talking about the performance of the last government.