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  #61  
Old Thursday, June 07, 2007
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New budget, new promises




By Sultan Ahmed
Thursday, JUNE 07, 2007



THE merry ministerial chorus that there will be no new taxes in the coming budget is not something new. The same has been said for several years during the pre-budget season. That does not mean there will be no readjustments in the existing taxes or regularisation of the old taxes for the greater gain of the Central Board of Revenue.

However, as this is the election year, the prime minister who is also the finance minister will be cautious and President Musharraf will be even more alert in this regard following the convulsions caused by the judicial crisis. The fact is that the new budget envisages a total outlay of almost two trillion rupees which marks an enormous increase in the current budgetary outlay. And that will include a part of the development expenditure to be met by the private sector through the public-private partnership which is to make headway in Pakistan now, imitating the European models including that of Britain.

Although Chairman of the Central Board of Revenue Abdullah Yusuf has been stressing at 10.50 per cent of the GDP, the tax-GDP ratio in Pakistan is too low and that is to be raised to 14 to 15 per cent within 5 years.

The World Bank and the Asian Development Bank which have been funding major development projects in Pakistan have also wanted that for long and miss no opportunity to underscore the urgency for such augmentation of the revenues. It is also a fact that despite the expected increase in the tax revenues next year without additional taxes, the financial or revenue deficit will be four per cent of the GDP which is high, though not by earlier standards. The percentage of the deficit is low but the volume of the deficit involved is very large because of the higher economic growth and that will express itself in terms of far larger public debt.

Despite the fact that the public sector development programme next year is to be a high 520 billion, that is only seven per cent of the GDP in a developing country with vast unemployment and under-employment. Anyway it is better than the three per cent PSDP outlay of the 1990s which was much too small.

The need for larger tax collection is too obvious. And its scope is also too evident because of the blooming business all round and the flourishing banking. And yet the government is not opting to collect the easily collectible taxes like the capital gains tax on trading in the stock exchanges and better taxing of the service sector. The zooming Karachi Stock Exchange index has touched its highest point of 13,000 and so the scope for taxing capital gains is plenty.

The hope that the hefty sales tax of 15 per cent may be reduced to 12 per cent if not to 10 per cent is not expected to materialise. That is one of the reasons why many prices are high.

Mr Navaid Ahsan, secretary general, ministry of finance, told journalists and others in Karachi that 40 per cent of the PSDP of rupees 520 billion will be spent on infrastructure and 47 per cent on the social sector. What happened to the early commitment of the government to spend four per cent of the GDP on education from next year along with a substantial increase in the outlay on the health sector?

We have not been given a specific figure of how much will be spent on power development to overcome the current gap of 1.5 million megawatts which may rise to 2.5 million megawatts next year. Currently many homes are facing load-shedding not once or twice but four to six times a day and, as a result, the black-out and the lighted periods are almost equal. We have however been told that Rs40 billion has been earmarked for the mega dams which will be used mostly for preparing feasibility and buying land for the dams. We are also told that Rs200 billion would be spent on subsidies, mostly on power.

The budget makers have two domestic problems and two external problems. The first is inflation rate which is officially at 8 per cent while the food inflation rate is at 10.5 per cent. Even supplies in plenty like that of wheat are a victim of price manipulators who hoard, control the movements and profiteer. Vegetable prices are at their peak. Imported food items like palm oil and milk powder are also high-priced. So are the local eggs. The prime minister promises to make supplies available in plenty but how exactly to do that, he is not sure in such vexing conditions.

The government is trying to solve the problem partly by raising the salaries of the federal employees by 15 per cent and pensions by 10 per cent. The provinces have to look after their own employees but they are in a quandary as they don’t have the money and will ultimately force the central government to pay up. The minimum wages of workers are also to be raised to keep them in good humour in an election year.

The State Bank of Pakistan’s tight monetary policy, which is to continue next year, has its benefits and also its limits in an economy in which the liquidity is very high and easily earned large incomes are in plenty. The government is in a dilemma as it does not know what to do next as traders remain defiant and continue to create shortages and make profits. Prime minister’s solution is to sell more and more essential goods through the utility stores but these are small in number. So, they are to be increased now by 500 and they are to sell medicines as well. Even in spite of the rise in their number, they will remain too small compared to shops which are readily and easily available to the consumers.

Since it is an election year the government is determined to hold down prices of essential items. So, it is subsidising the sale of sugar by a rupee a kilo and lower the prices of various kinds of pulses and rice. But from the indications given that the heavy import duty on palm oil is not being reduced, that would be very disappointing to the consumers. But President Musharraf has said the quality of life of the poor will change after the new budget. But a larger role being given to utility stores alone cannot do the trick.

The second problem is the fiscal deficit which next year will be four per cent of the GDP or about Rs700 million, the same as this year. That will be met through external and domestic borrowing and printing of additional currency notes which will add to the national debt substantially.

Governor of the State Bank Dr Shamshad Akhtar feels disturbed by the heavy bank borrowing by the government and making it print extra currency notes for its needs which has aggravated inflation this year too. Dr Akhtar would want the government to borrow through treasury bills and federal investment bonds and reduce the liquidity in the market instead of adding to the money in circulation and add to the demand pressure, resulting in higher inflation. But the government finds borrowing through the State Bank easier and more convenient.

The National Assembly which is charged with checking excess borrowing by the government should keep a sharp eye on its borrowing keeping in view that the tax revenues are larger than expectations. Otherwise too much of the taxes paid will go towards debt servicing and not development. And that will happen at a time when the assets of the nation are being liquidated through a rapid process of privatisation.

The third problem is the mounting trade deficit which is already 11 billion dollars after the first 10 months of the financial year. The year could end up with a total deficit of 14 or more billion dollars and that is causing a large current account deficit which is expected to be a high five per cent of the GDP and such a large current deficit is occurring despite the home remittances of $5 billion and foreign investment of $6 billion which are record figures. The World Bank and the Asian Development bank have been cautioning Pakistan against such large deficits as Pakistan cannot sustain them and maintain a high growth rate.

The solution has come through larger exports in a world in which many countries have achieved high growth through exports, particularly South-East Asian states. The import bill cannot go down much as next year’s oil import bill is expected to be 8.8 billion dollars. But what we are achieving is high growth with low exports depending primarily on agriculture and the service sector.

Mr Ahsan says the government has sent three reports to the National Assembly. They relate to (1) economic management, (2) debt management and (3) fiscal management. They cover the financial system as a whole. The standing committee of the ministry of finance should study the reports in detail with the help of consultants if necessary. They cover the entire financial and economic sector and the National Assembly can get control over the financial sector.

He has also said that the investment in Pakistan will rise to 23.8 per cent of the GNP next year from 23 per cent in the current year. That is happy news as for long the rate of investment has been as low as 17 and 16 per cent while a 25 per cent investment was held as ideal. Now it has come to 23.8 per cent and the 25 per cent target is not far off.

The textile industry is to be exempt from import duty on its machinery and components. This can be a very welcome development as it will increase investment in textiles and reduce the cost of production and exports. We need a far larger output to increase the exports and the producers should be given all possible incentives.

http://www.dawn.com/2007/06/07/op.htm#1
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  #62  
Old Saturday, June 09, 2007
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A cruel law and the budget



By Mir Jamilur Rahman
satureday, JUNE 09, 2007


Laws are made for the general good of the people. And in a democratic society, they are made by public representatives. It is the prerogative of the parliament to make laws according to a procedure that allows maximum debate on the pros and cons of the proposed law. However, in our constitution, there is a provision that allows the executive to make laws when the National Assembly is not in session. This provision in fact makes a mockery of democracy. Whether elected or otherwise, no government has ever contemplated doing away with this provision, because it suits every government to have the power of law-making.

Gagging of the press has always been a preferred game of every government, with one exception. The late Junejo perhaps was the only Prime Minister who never felt scared of free media. He happens to be the only Prime Minister who sent three of his cabinet ministers packing home because they were alleged to have indulged in corrupt practices.

President General Pervez Musharraf is a military dictator, and yet he never made any law to muzzle the press. He understood the value of free press and open debate. He has an open mind and welcomes criticism. He interacts with journalists and engages them in debate on important current issues, domestic and foreign. He remains patient even when provoked with most critical reviews of his policies. He is a good listener; seldom interrupting a question or comment. It was entirely his initiative that gave birth and phenomenal rise to independent television channels.

The sacking of Chief Justice Iftikhar Muhammad Chaudhry on March 9 changed the entire perspective about freedom of expression. It abruptly brought to an end the government-media honeymoon which had withstood testing times without sinking in disharmony. The sacking and the subsequent events which climaxed in Karachi on May 12 became the hottest news the nascent TV channels had encountered in their short life. The sacked CJ was on TV screens round the clock, either in person or being discussed in the talk shows. The people were glued to their TV sets. They ignored their favourite programmes; the CJ show became the most watched programme in Pakistan. The Chief Justice was upsetting the apple cart and something had to be done to get him out off the TV screen. Hence the PEMRA amendment law which is utterly cruel as it aims at discouraging the electronic media industry. It will render many people jobless. To be sure, the entertainment industry is the biggest provider of jobs in the world.

The amended law gives extensive powers to PEMRA to subvert the broadcasts of independent TV channels. PEMRA could order the cable operators, which number 1700 nationwide, to remove a recalcitrant TV channel from their circuits thus imposing an illegal censorship. It could seal the premises of a TV channel and take into custody its broadcasting equipment. It could cancel the licence of a private TV channel and/or fine it up to Rs 10 million for disobeying PEMRA rules. Many viewers must have watched in wonder the comings and goings of their favourite talk shows. One moment they are on the screen going full blast and the next, they disappear without a whimper leaving the screen blank.

The journalist community is strongly protesting the unjust law. At stake are not only freedom of media but jobs of TV journalists and other workers. If the licence of a private TV channel was suspended or cancelled, hundreds would become jobless adding to the number of unemployed in the country. Is it appropriate to reduce job opportunities on the eve of the budget? What would the jobless journalists do? Most probably swell the rallies of protesting lawyers.

Good news: Prime Minister Shaukat Aziz has suspended the application of the new PEMRA Ordinance. A committee has been formed consisting of representatives of broadcasters and the information ministry to negotiate a settlement without compromising freedom of expression and independence of private TV channels.

Today is an important day because this evening, the annual budget will be presented in the National Assembly. The State Minister for Finance in his speech would recount his government's achievements during the current financial year and set out goals for the next financial year. Prime Minister Shaukat Aziz, who also holds the portfolio of Finance, has repeatedly said that the people would vote for the present set up because it has done wonders for the economy. In his opinion, it is the overall performance of the PML-Q particularly in the economic field that would influence the voters' mind.

Undoubtedly, the GDP has gone up. Pakistan is maintaining a reasonable rate of growth. The per capita income has increased appreciably. Forex reserves are stable. Direct foreign investment is trickling in. In short, all the economic indicators are encouraging and the government has met its economic targets set in the last budget.

Unfortunately, the common man does not understand GDP growth and thinks that if it is such a good thing then why prices of kitchen items are going up, up and up. He feels a distant satisfaction that forex reserves are stable as he is unable to make out what benefits that stability would give him. The residents of Karachi know that the quality of life would remain poor for many years to come because the government has failed to plan ahead for electricity and clean drinking water. The urban citizens, especially those living in Karachi, Lahore and Islamabad/Rawalpindi live dangerously, chasing public transport which mostly consists of wagons. Several governments one after the other have thought loud for providing mass transit facility to the dwellers of big cities but no serious attempt has been made to provide this most essential facility to the people. Today's budget would be silent on this important issue.

When people go to vote in a few months, economic progress would not be on their minds, because our economic progress is not tangible enough to be felt by all and sundry. They will cast their votes on political grounds. While voting, their minds will go back to March 9, reliving the sacking and manhandling of the CJP. They will relive the events of that day and the days that followed, especially the Karachi bloodshed of May 12 that took away over 40 lives while the administration looked the other way. They would not forget the government's attempt to silence the private TV channels.

There is no chance that by the time elections are held, the people would have forgotten about March 9 and May 12. The opposition would not let the people forget the indignities perpetrated against the CJ, lawyers and journalists.



The writer is a freelance columnist. Email: mirjrahman@yahoo.com



http://www.thenews.com.pk/daily_detail.asp?id=59794
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  #63  
Old Saturday, June 09, 2007
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Budget claims: how true?



Haseeb Ahmed Bhatti
Satureday,JUNE 09,2007


The most high-profile economic document, the federal budget will be presented in the National Assembly today. The government has revised many of its claimed targets of the last budget. The target for growth in industrial production has been reduced to half. Large-scale manufacturing has also been accepted formally as being not able to achieve its officially claimed target. The same sorry state of affairs exists in the export and import targets. Agriculture, like many previous years, has again failed to meet its growth target. Whether it is the issue of the Chief Justice, May 12 massacre in Karachi, the media or the economy, nothing is working in favour of the government presently. As the stage is set to present another federal budget in the most critical phase of the government, on one side there exist extreme sentiments, opposition and questions against their credibility and on the other, it is going to be the last federal budget of the present government. How the coming budget is going to be accepted by the people we will have to wait and see.

The federal budget of any country is normally a routine document not as much awaited by people as in Pakistan. The fundamental reason for great expectations arises when the priorities of any government are not pro-people and in the vain hope of betterment, people attach expectations with every coming budget. Historically, it has gained importance as governments fix their targets in different sectors of the economy and new economic initiatives are normally announced which get approval from parliament. In democratic societies, due consideration is given to the opposition’s concerns and ideas about the federal budget. Unfortunately, the last seven years’ budgets remained one-sided affairs, and even a single suggestion of the opposition or independent economists was never given due consideration. The government’s priorities and development agenda, if they remain rational and aims toward the genuine improvement in the welfare of a majority of the population, then federal budgets become only an announcement for a new year’s expenditures.

Where are the present government’s priorities wrong? These are in the agriculture sector where irrational prices of diesel and removal of subsidies from various inputs has made different crops for farmers no more profitable. Shortage of water is hurting them badly and poor road infrastructure is a major obstacle in getting good prices from better markets. Take trade relations, where it is in unnecessary haste to sign free trade agreements in every corner of the world. It has utterly failed to increase human development indicators and reduce of extreme poverty. The present government has failed to solve the energy and water crisis of the country. It is highly unsuccessful in attracting Foreign Direct Investment (FDI). Selling public assets at throw-away prices cannot be at all called Foreign Direct Investment. Citing an example about priorities, the total outlay of the last budget was Rs. 1,315 billion; 19.02 percent was allocated to defence while a meagre 1.17 percent to health and population combined, and 1.74 percent to education that also included the controversial allocation of a hefty amount for the Higher Education Commission (HEC).

The top-most objective of the last budget was, ‘to provide relief to the fixed income group and to the common man’. Who is this common man? We are in dire need to define this common man who is supposed to be benefited in the successive budget speeches and economic policy documents. To provide relief is of course a very general and vague statement. Let us suppose relief means making life better for the poor people. It is to provide them better chances of income, health facilities, better water sources and education for their children. Not only education, but a guarantee that this education will result in making their lives better through employment opportunities. Almost a whole year has gone after the announcement of this top-most objective of the last federal budget. How successfully it has been achieved or steps to achieve it have been taken by the government does not need a microscopic analysis but is quite visible to everyone. It is visible in the highest possible food inflation and in the basic utilities like the prices of sugar, vegetables and cooking oil and in prices of pulses and rice. The price of milk is at a historic high. This is to name a few. Ask anyone who is running a household and they would tell their long ordeal of this price-hike and its negative effects on household budgets. Recently at a seminar Dr. Salman Shah, the Adviser to the Prime Minister for Finance, declared Pakistan as Asia’s fastest-growing economy. How true is that claim needs a separate scrutiny from this topic, but he must be aware that in developed economies or in economies where people’s problems are taken care of, even a 0.5 percent increase in food items prices is taken very seriously. Policy planning there aims at keeping these prices at the level of negative growth rate. The same is true of unemployment figures; a single digit rise is dealt with extreme sensitivity. Unfortunately, things which matter most are neglected most by the economic managers of this country.

The government takes great pride in indicating the increase in automobiles and air conditioners’ sale as symbols of the prosperity of people. Pakistan thus becomes the only country in the world using such indicators of prosperity and emergence of the middle class. All other internationally accepted indicators like purchasing power parity, Gini index of inequality, inflation, increase in real income, unemployment rate and human development related indexes do not remain concerns to be worried about. The government plans to privatise assets worth $ 2.5 billion every year and in its present routine will claim it as increased foreign direct investment in the country. The coming budget is different from the previous ones; it is going to be presented in a charged national environment where many steps of the government are being questioned seriously. How the independent economists and other concerned businessmen and traders react to the budget is going to seen soon. But one thing is evidently clear. Tides are high and the boat is going to face a tough ride. Not words, but correct actions are the need of the hour.

The writer is a faculty member, Department of Business Studies, University of Sargodha


http://www.thepost.com.pk/OpinionNew...01454&catid=11
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  #64  
Old Monday, June 11, 2007
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An election-focused budget



Monday,JUNE 11,2007


THAT it would be an election-centric budget was never in doubt. The proposals for income and expenditure for 2007-08 announced by the minister of state for finance Omar Ayub Khan in the National Assembly on Saturday more than confirmed the expectations. Still, compared to the official buildup and Mr Khan’s hyperbole in his budget speech, relief offered to the common citizen does not appear all broad-based and lasting. Some of the proposals do try to address the concerns found among vulnerable pockets, but that is all. At Rs1.874 trillion the total outlay of the budget is awe-inspiring when compared with previous budgets. If as much as Rs1.025 trillion is being projected by way of resources to cater to the financial needs of the nation over the next 12 months, with a deficit financing of just 4 per cent of the GDP, at Rs398 billion, one must praise the effort of the official economic managers at resource mobilisation. This is amazing, because there are no more than about 1.2 million tax payers in a country of 160 million. The agriculture sector, a major contributor to the GDP, as well as real estate and capital gains continue to stay out of the tax net. With so much available for spending it was only expected that there would be massive increases in the allocations for important economic and social sectors, and enough left for providing financial relief to low-income groups. This is to be done through increase in income, salaries and subsidies offered on the poor man’s essential kitchen items to save him from the hardship of food price inflation. Sizeable allocations have been made for the provinces and districts as well; the latter ostensibly for furthering the ruling coalition’s election bid in that offering no break from the past.

During the outgoing year, food price inflation of over 10 per cent left many a kitchen cold, even in households estimated to be living a little above the poverty line. Combined with an overall Consumer Price Index of nearly 8 per cent it was but expected that the consumption of the poorest 20 per cent of Pakistanis remained below 10 per cent in the outgoing year, while the richest 20 per cent enjoyed a consumption rate of nearly 50 per cent. The gap between the poor and the rich continues to widen. There are no open or hidden measures in the new proposals that one could say with a degree of certainty would attempt to bridge this gap. The promises to create thousands of jobs and build thousands of low cost houses for the poor are just that at this stage. Last year, while announcing the budget, the government had promised to send out magistrates for checking the prices of essential kitchen items, but no magistrates were seen in the field in the course of the year.

Every time the government is faced with tackling high food price inflation, which has been there now for three years running, it has taken shelter in Utility stores. In the first place there are just not enough Utility stores (about 1,000 or so) in the country to take care of the needs of the teeming millions. Secondly, when you are practising market economy how is it possible for you to intervene efficiently with public sector instruments to control prices even if you succeed in setting up 5,000 such stores, say, within a year? Last year an announcement to the effect was made, but with a difference. The government had promised to help set up such stores under a public-private partnership. Nothing has come of it so far. Of the total subsidy outlay of Rs113.9 billion, only Rs2.45 billion are proposed to be used for keeping the prices of pulses, sugar and ghee within the reach of the buyers shopping at Utility stores. A major portion of the subsidy, Rs98 billion, is being kept to help out Wapda, the KESC, the petroleum companies, refineries and the textile sector. This bares all as to the state of governance in public sector corporations, and the government’s urge to stay on the right side of big businesses while making claims to alleviate poverty.

In this year of record wheat production, atta prices have escalated sharply just before the unveiling of the budget, forcing the government to impose a ban on flour export. Perhaps exports contributed to the shortage seen in the market to an extent, but major reasons for short supplies and high prices were hoarding, black marketing and an inefficient distribution network. The overall inflation rate, much like in the outgoing year, is not going to slow down over the next 12 months. There is nothing in the new budgetary proposals that has the ability to tackle the menace at its root. The production sectors continue to stagnate. No real investment is coming their way. Agriculture remains at the mercy of the weather, and the availability of water; a bumper crop one year is no guarantee that bulls would rule the coming years as well. The manufacturing sector is one that needs badly to be geared up and diversified. An overwhelming dependence on cotton textile will not help the country in the longer run. There will very likely be shortages all around. One says this because cotton production has seen a decrease in actual terms in the outgoing year. The trend is not likely to reverse anytime soon, given the shrinking crop on account of water shortage and ineffective pest control.

There is an expected inflow of nearly $5 billion in remittances, coupled with substantial income in foreign exchange from privatisation. These inflows will partly take care of the current account deficit, which is widening mostly due to stagnant exports and a rise in imports. The additional income is not due to a significantly greater domestic economic activity. As such rupees generated against incoming dollars add to the M2 aggregate, which creates the unwanted condition of more rupees chasing fewer goods, causing in turn the prices to go up. Attempts at cooling this hyper circulation of currency by the State Bank of Pakistan only end up raising the interest rate, thus escalating the cost of production which already has become prohibitive because of shortages of infrastructure, especially of power. This is causing even textile exports to price themselves out of international markets. That is why perhaps textile tycoons keep demanding subsidies. That is also perhaps why most of the earned foreign exchange by way of remittances and concessional capital coming into the country is going into unproductive sectors like real estate and the stock market.

The proposed share of current expenditure at Rs1.599 trillion in the total budgetary outlay is a worrying 66 per cent. One only hopes that it will not shoot up to over 72 per cent as it did in the outgoing year. Such overshooting of current expenditure eats into the development budget which is estimated at Rs543 billion for the current year. The reference to the defence budget has once again remained a one-liner. Isn’t it time now to discontinue this economically senseless and undemocratic practice? Let us tell the people of Pakistan the real cost of maintaining an effective deterrent and from where the resources are coming to accomplish this. The biggest flaw of the budget seems to be its failure to take serious note of the looming power crisis and depleting water resources. The allocations for these heads are not commensurate with the challenges we will be facing on these fronts within the next couple of years. Housing, too, deserved more than it got.


http://www.dawn.com/2007/06/11/ed.htm
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Old Monday, June 11, 2007
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‘Tis the season to be merry’




Hit and run

By Shakir Husain
Monday,JUNE 11,2007


Millions of citizens across Pakistan are quivering like little puppies as they anticipate their most favourite time of the year — budget time. For those tens of thousands of tourists who are visiting Pakistan because of the Visit Pakistan 2007 campaign, budget time is when millions of ordinary Pakistanis rejoice as they know that a bag of tasty treats awaits them. Budget time for Pakistanis is like St Patrick’s Day for the Irish or Oktoberfest for the Germans, Mardi Gras for the citizens of New Orleans, or whatever day of festivities drunk Welshmen observe. This is the time of the year when the alchemists at the ministry of finance under the tutelage of the grand wizard of banking himself unveil the eight wonder of the world which will benefit the common man.

At the risk of sounding irreverent, I would like to clarify that while the millions of citizens of Pakistan await the federal budget with great excitement, it should in no way be equated to a circus. I believe after last year’s critique of the great budget bonanza performance, it has been rumoured that the Minister of State for Finance Omar Ayub Khan has decided to go for a makeover at a leading stylist and fashion guru — another sign of a responsive government. No doubt, Mr Khan will entertain millions of Pakistanis as he steps on to the podium to announce the thousands of sacrifices that the state machinery has no doubt made in order to present yet another populist budget for the people. Now that every Pakistani is earning a thousand dollars it is important for all of them to recognise who really made all this prosperity happen to begin with.

While the thousand-dollar crowd will be applauding the honourable person of the finance minister, it will be the million-dollar crowd which will really be partying hard on budget night. Rumour has it that the government is reviewing a very serious bill in the National Assembly which will declare the day after budget day a national holiday. According to press reports future generations of Pakistanis will have a Rs398 billion budget deficit which they will need to pay off in their lifetime — thank God we won’t be around when those poor sods need to pay for all the goodies we’re consuming today. I mean look at those poor, miserable, and repressed Japanese with all their savings? Is that a way to live? I hear sometimes their prime minister even takes the train — what a ridiculous man for not having a motorcade which blocks traffic for a couple of hours.

Friendly tourists, something to really look out for is the pre-budget festivities in Pakistan. And while you won’t find any mention of these in the tourist guides you carry around, they really are an activity not to be missed. This is the part when members of our very efficient and effective 100 man federal cabinet led by none other than the man of deals himself goes around Islamabad buying groceries for their homes. It’s quite sweet to watch this merry procession to something called the Utility Stores buying sugar, lentils, and tea. Unlike your home countries where men in grocery stores don’t look too excited, the budget festival entertainers are grinning from ear to ear like village idiots while being photographed from all angles. It is quite a spectacle and the world council of grocers might be nominating it for the “Happiest Grocery Run” award in their next annual meeting.

Another favourite pre-budget activity is something of a personal favourite, and it’s known as hoarding. This activity occurs when very wealthy traders, based on insider information about the budget, begin to stock up on their favourite goodies in enormous quantities. Nothing is sacred whether it is medicine, rooh afza (what Pakistani diplomats give by the caseload when they’re presented with Bordeaux), or cooking oil, and billions are made by offloading these goods after the budget. This fun activity is open to all who have the right contacts in Islamabad, and if you happen to be a Caucasian you won’t have any problems accessing anyone in government as long as you tell them you’re a foreign investor. Hell, you might even get free room and board in the best hotels along with free transportation.

It’s beyond me why the natives of certain parts of the country refuse to participate in this national festival of the budget. We hear that in Karachi the local power utility is ruining the pre-budget party by not supplying electricity for four hours at a stretch. And while Karachi is now known as the city of harmony, it is having trouble attracting tourists to come for its pre-budget party, I hear that orders have been issued by the powers that be that the party must be a success. The traditional Karachi pre-budget party usually happens outside the Karachi Stock Exchange and goes all the way to I I Chundrigar Road, but this year both brokers and bankers are expressing solidarity with their indicted brothers Hafiz Naseem and Ejaz Rahim and have cancelled the celebrations.

To all the party poopers who are trying to bring up silly issues like inflation, deficit, crushing debt which will be paid back by future generations, spiralling luxuries like German limousines, private jets, massive expense accounts, and crony capitalism I say back off. Back off because our leaders work very hard to bring festivals like budget time to the entertainment starved masses once a year, and if they need a few perks to make the pressure of their excessive workload easier they should be able to indulge themselves once in a while. So what if we have to pay for it — isn’t it really worth it?

The writer is an entrepreneur andbusiness consultant. Email: shakir@ gmail.com


http://www.thenews.com.pk/daily_detail.asp?id=60028
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A populist budget?



Monday,JUNE 11, 2007



The federal budget for the year 2007-08 presented in the National Assembly on Saturday by the minister of state for finance is ostensibly populist in nature because subsidies on several essential items such as pulses, cooking oil, rice, sugar and tea and basic medicines have been introduced, albeit at the retail level, pensions have been increased as has the minimum wage and salaries of government employees. The consolidated budget of Rs1.874 trillion has an ambitious tax collection target of Rs1.025 trillion and defence expenditures for 2007-08 allocated Rs 275 billion, 10 per cent higher than last year. Incidentally, defence is again a one-line item, over which there is sure to be no debate in parliament ñ and the minister could have done without the needless rhetoric when he announced this figure. However, one striking aspect of the budget is its massive deficit, estimated to be at Rs 398 billion which the government says will be bridged by domestic and external borrowing. This is bound to become controversial because of simple economics: financing a deficit means that the governmentís debt burden will increase and eventually —- in the longer term ñtaxes may have to be raised to finance the increase in the debt. So this seemingly populist measure, presumably to make things easier for the ruling party in an election year, will only have short-term consequences.

It would be fair to assume that the governmentís populist plan to subsidise certain essential food items at the retail level through utility stores is perhaps the major reason for the significant deficit. As pointed out earlier, in addition to these food items, many of whose prices have been beyond any kind of government control in the past (particularly sugar), the plan also includes the subsidized sale of basic medicine. The latter in itself seems quite ambitious because even at government hospitals, where medicines are supposed to be provided free of cost, patients often have to pay market rates. The whole scheme of making available food items at subsided rates merits close examination because it seems to be the centerpiece of the 2007-08 budget.

The subsidized products, it is proposed, will be sold at government-owned utility stores and the plan is to have one such store in every union council within the next four months. Past experience has shown that selling subsidized good at utility stores is riddled with many problems such as pilferage/embezzlement of products by store staff. The network of stores is also not very comprehensive. Even setting all this aside, a target of one store in every union council in the country seems unrealistic to say the least. Apart from that, the whole nature of this subsidy is not sound on purely economic grounds. For instance, the fact that subsidy is being levied at the retail level and not at the production stage means that the whole scheme is to show to the electorate ñ most of whom are obviously not economics-savvy ñ that they will be able to buy some essential food items at controlled rates (with the difference being picked up by the government). However, a far more useful approach to a subsidy package would have been to levy the assistance at the production stage. This would have been better because it would have a potentially longer term positive effect on prices, since production would increase and help reduce chances of any shortages arising in the long term as well, which is the primary reason why food prices have been rising of late.

Furthermore, a subsidy at the retail level does not do anything to generate employment opportunities, something that would happen if it were levied at the production stage. Given all this, the only plausible reason that one can think of why the government would have chosen this particular approach ñ which is nothing really but a cosmetic quick fix to a problem requiring a solution that works through to the long term — is that it may achieve some results in the short term for the ruling party. It also should be noted that the bulk of the subsidies are meant for sectors which seem hardly in need of any assistance ñ such as textiles, oil marketing companies and refineries ñ or are going to white elephants like KESC and WAPDA whose inefficiencies are yet again going to be paid for by taxpayers.

Moving on to revenue collection, the estimate for 2007-08 is almost 22 per cent higher than the estimates for 2006-07 and it remains to be seen to what extent this ambitious target is met given that there has been no significant widening of the tax net. As usual, this will be done by subjecting salaried persons and the corporate sector to more indirect taxes ñ which are regressive especially for those from low- and middle-income backgrounds. In fact, according to the budget figures 60.4 per cent of the total tax revenue will come from indirect taxes. If the poorer sections of the population are to be helped in any significant way, this percentage needs to be reduced, to increase the share of direct taxes since they are more progressive and carry a bigger burden of payment on the rich. On other fronts, there seems to be little initiative to move the inflow of capital and funds into generally non-productive sectors such as real estate (particularly sale and purchase of plots) and stocks and shares. In fact, a proposal to create a trust where small-scale investors may invest to reap profit from investment in real estate seems unjustified given that this non-productive sector has already diverted a lot of funds that could have been better utilized elsewhere, in increasing the economyís productive potential and in generating employment. As far are the proposal to increase the salaries of government servants by 15 per cent is concerned, it may well have just the opposite effect on the majority of Pakistanis who do not have a government job in that their tax rupees will be used to pay for this raise. What ordinary Pakistanis would have wanted is not quick fixes that may or may not offer them the promised benefits but some longer term planning to prices of essential items in check. As for key social sectors such as health and education, the funds allocated to them remain far too little given the amount of work that needs to be still done to raise literacy rates and the quality of healthcare available in the country. One other issue that seems to have escaped policymakers for now ñ and the need for this has never been more acute given the current loadshedding crisis ñ is the matter of increasing the countryís water storage and power-generation capacity with only small amount of funding set aside for this meaning that no significant headway has so far been made in building a dam.

http://www.thenews.com.pk/daily_detail.asp?id=60026
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Blending expectations and hard realities


By M. Sharif
Monday,JUNE 11,2007

The budget has been presented amidst hard realities of day-to-day living experiences imposed on a large number of people through free market mechanism. They have been groaning under the weight of inflation, particularly food inflation (registered over 10 per cent during the outgoing fiscal year) during the past four years. The segment of society that suffers the most is low income category, the unemployed and daily wage workers. They have been waiting with the expectations that budget will bring substantial relief to them in hard pressing areas. What does budget really offer to these segments of society and many other smaller segments in between them, is one of the most important questions to be addressed.

The most important issues to be addressed by budget planners were making best use of fiscal space and generating financial resources for development and meeting current expenditure. In addition to these, the government is to provide incentives for various sectors of the economy to sustain high growth and above all demonstrate political will to address social and economic problems confronting people. Together with this, to be able to address critical issues facing the economy, not at their face value but at their core points. Equally important is the fact that budget 2008 has been presented in an election year and under somewhat politically stressful conditions for the government thus some softening by providing some relief to hard pressed segments of society was in order. Also required was some incentives to various sectors of economy to achieve growth target of 7.2 per cent for FY08.

Background

Before looking at the budget proposals, it is essential to look at the performance of the economy during outgoing fiscal year. It did well on a number of accounts despite the fact that the government revised macroeconomic targets for the outgoing fiscal year. The economy achieved growth rate of 7.0 per cent, FDI increased beyond the target of $5.0 billion to $6.0 billion during first 10 months of the out going fiscal year, fiscal and current account deficit despite being high remained manageable, rupee-dollar parity remained stable despite a little pressure of devaluation to boost textile exports, forex reserves increased to more than record $15.0 billion and economy’s rating in international financial market remained more than satisfying to fetch $800million in May2007 for budgetary support. Capital formation in stocks has touched new heights and is considered to reflect strength of the economy.

Somehow these strong macroeconomic indicators do not go along with independent analysts who see the economy beyond fiscal and monetary indicators on certain obvious accounts. Conspicuous among them are high inflation, huge trade deficit, shortfall in exports by around $1.0 billion, dependence of the economy on external inflows of more than $8.0 billion each year and huge inequality that government policies keep creating among different segments of society during each fiscal year. According to independent analysts and quarterly reports of SBP, expansionary fiscal policy that has a direct bearing of fuelling inflation, weak supply side of economy, lack of full utilisation of PSDP expenditure and efforts to correct structural imbalances in the economy particularly with respect to increasing tax revenues are some of the important factors that did not make outgoing fiscal year a good year for the general public.

The budget

The budget, in terms of outlay, is a mega budget with record outlay of public expenditure under various fiscal heads as well as revenue collection. Its outlay is Rs1.847trillion with the largest ever PSDP expenditure of Rs520 billion and subsidies of Rs204 billion. PSDP expenditure is planned to be met through private and public sector partnership. Revenue collection target has been fixed at Rs1.030547 trillion. Further details of the budget outlay, fiscal targets and important budgetary proposals are as follows:

(1) Budget outlay is 35 per cent higher than the outlay for outgoing fiscal year, and projected revenue collection is 22.0 per cent higher than last year target of Rs835 billion that is likely to be achieved comfortably by the end of current fiscal year.

(2) Non-tax revenue is estimated at Rs337.593 billion. In case of adding it to tax revenue collection of Rs1.030547 trillion, total revenue collection is projected at Rs1.369trillion. After disbursing Rs465.964 billion to the provinces the federal government would be left with a net-revenue of Rs902.176 billion as against total fiscal expenditure of Rs1.599611trillion. The budget document shows heavy dependence on external borrowing of Rs258 billion, bank borrowing of Rs130 billion privatisation proceeds of Rs75 billion to meet the fiscal gap.

(3) Current expenditure is projected estimated to be Rs1.353trillion that is 54 per cent of the total budgetary outlay. This includes Rs275 billion for defence, Rs24.5 billion for safety affairs, *** Rs641.875 billion *** for general public expenditure and Rs520 billion for public development expenditure. Out of public development expenditure of Rs520 billion, federal government is to spend Rs370 billion and provinces share is projected at Rs150 billion.

(4) Projected fiscal deficit of Rs398 billion is 21.0 per cent of budgetary outlay. This is quite high percentage and also quite high in absolute terms. It would generate its own inflationary pressure and tight monetary policy likely to be pursued by the SBP during the FY08 which, might prove to be less effective to contain inflation once again.

(5) 25 per cent increase in the PSDP from Rs435 to Rs520 billion is certainly a big increase which will go a long way in creating jobs, reducing unemployment and alleviating poverty. 52 per cent of it is allocated for development of infrastructure and 48.0 per cent is meant for social sector development and welfare of the people. The projected allocation reflects concern of the government in two development areas. One, power sector development has a serious deficit vis-à-vis around 7.0 per cent growth of economy over past four years. Shortage of power has serious implications for mid-term economic growth targets and cost of production of manufactured goods specially meant for exports. Current power crises are quite serious and it is feared that 1200mw deficit might take at least 2-3 years to bridge the supply and demand gap. The budget proposes to spend Rs40.0 billion on construction of dams. Two, social sector development has a direct bearing on poverty alleviation that the government claims to have been reduced to around 24.0 per cent, despite persisting high inflation over past four years.

(6) Provinces share has been increased substantially to Rs497.2 billion that is 46.0 per cent of divisible pool.

(7) Allocation for subsidies has been increased to Rs204 billion. It includes of subsidy on food items, power and fertilisers.

(8) Defence allocation has been increased from Rs250.0 billion to Rs275 billion.

(9) Rs34 billion has been allocated for Khushhal (people’s welfare) Pakistan scheme.

Relief to low-income group

The budget includes quite a few proposals to provide relief to the common people. A few important of them are listed as follows:

(a) Subsidies worth Rs204 billion will be provided including items of daily use to help the common man.

(b) Salaries of the government employees have been increased by 15.0 per cent and the pensions 15.0 and 20 per cent.

(c) The government plans to combat poverty by selling items of daily use such as rice, edible oil, dales, tea, sugar and other items of daily use at comparatively cheaper rates than the market. It intends to commission 5000 more utility stores with at least one at each tehsile (sub district) level. The stores will also sell discounted medicines.

(d) Old age scheme has been increased from Rs1300 to Rs1500 and minimum salary of unskilled labour has been increased from Rs4000 to Rs4600 pm.

(e) Allocation for Baitulmal (public welfare funds) has been increased to Rs7.5 billion.

(f) Rozgar (employment) Scheme has been allocated Rs105 billion over next five years, with around Rs20 billion a year.

(g) Housing problem will be addressed in Islamabad by constructing 5000 apartments and 3 to 5 marla schemes will be launched to help poor segments of the society.

(h) It is planned to open up 5000 utility stores across the country at the grassroots level to combat inflation.

(i) In order to augment existing health facilities, 815 basic health units are planned to be established.

Industrial sector

Industrial sector did not meet its target. Favourable budgetary proposals have been made to boost industrial sector. Some of them are as follows:

(i) Zero-tariff slab has been proposed to reduce the cost of raw material.

(ii) Custom duty has been withdrawn on import of machinery used in horticulture, furniture, surgical and medical instruments.

(iii) Custom duty on generators to be used for domestic and commercial use has respectively been withdrawn and reduced.

Some concerns

Fiscal deficit of Rs359 billion is projected to be met through bank borrowing of Rs130 billion and foreign borrowing of Rs229 billion. It is around 4.0 per cent of GDP. Two important factors need to be highlighted because of high deficit that could affect economy adversely.

One, it will add to the public debt which is already high in absolute terms. Borrowing from foreign resources is intrinsically linked with political stability in the country. One only hopes that the government successfully rides over somewhat disturbed situation in the country.

Two, the government prefers to borrow from the central bank than from commercial banks to have less debt servicing liability. It builds inflationary pressure as has been happening till now.

Thrust towards an expansionary fiscal policy is likely to persist during FY2008 as well despite tight monetary policy that the SBP has vowed to pursue. It might prove to be difficult to bring down inflation from its current level of 7.9 to 6.5 per cent as has happened during the outgoing fiscal year. High inflation and expansionary fiscal policy could discourage some FDIs that is upbeat because of surplus liquidity available in the Gulf States and western countries and their willingness to help the government in Islamabad for political reasons.

Amount of subsidies doubled from Rs109 billion for current fiscal year to Rs204 billion under various heads starting from power, fuel, fertilisers and food to pension. It will certainly provide some relief to common people.

The increase in subsidies despite being a welcome measure has the inherent drawback of not being the right solution of the issues that can be resolved only through correct economic policies that should enhance tax-to-GDP ratio, boost industrial output, change trade deficit into surplus, increase savings and employment and should curb effectively income inequality that is on the increase according to the Economic Survey 2006-07.

No new taxes have been imposed and a few changes have been made in the existing taxes. One per cent surcharge has been imposed on all but some essential imports.

Some of the taxes that should have been imposed have been left aside. They could have generated substantial tax revenue. For example, capital gain tax that could have been imposed on stocks and real estate business - has not been levied. Likewise, it is unlikely if the provincial governments would take the major step of levying agriculture income tax.

Current expenditure is on the increase. It calls for fiscal discipline to have less dependence on borrowed money for fiscal management.

Conclusion

The budget has been termed pro-people, relief and development oriented and perhaps the best one announced by the government during past seven years.


http://jang.com.pk/thenews/jun2007-w...06-2007/p2.htm
__________________
Time is like a river.
You cannot touch the same water twice,
because the flow that has passed will never pass again.
Enjoy every moment of life.

I have learnt silence from the talkative, toleration from the intolerant, and kindness from the unkind; yet strange, I am ungrateful to these teachers.
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  #68  
Old Monday, June 11, 2007
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Blending expectations and hard realities


By M. Sharif
Monday,JUNE 11,2007

The budget has been presented amidst hard realities of day-to-day living experiences imposed on a large number of people through free market mechanism. They have been groaning under the weight of inflation, particularly food inflation (registered over 10 per cent during the outgoing fiscal year) during the past four years. The segment of society that suffers the most is low income category, the unemployed and daily wage workers. They have been waiting with the expectations that budget will bring substantial relief to them in hard pressing areas. What does budget really offer to these segments of society and many other smaller segments in between them, is one of the most important questions to be addressed.

The most important issues to be addressed by budget planners were making best use of fiscal space and generating financial resources for development and meeting current expenditure. In addition to these, the government is to provide incentives for various sectors of the economy to sustain high growth and above all demonstrate political will to address social and economic problems confronting people. Together with this, to be able to address critical issues facing the economy, not at their face value but at their core points. Equally important is the fact that budget 2008 has been presented in an election year and under somewhat politically stressful conditions for the government thus some softening by providing some relief to hard pressed segments of society was in order. Also required was some incentives to various sectors of economy to achieve growth target of 7.2 per cent for FY08.

Background

Before looking at the budget proposals, it is essential to look at the performance of the economy during outgoing fiscal year. It did well on a number of accounts despite the fact that the government revised macroeconomic targets for the outgoing fiscal year. The economy achieved growth rate of 7.0 per cent, FDI increased beyond the target of $5.0 billion to $6.0 billion during first 10 months of the out going fiscal year, fiscal and current account deficit despite being high remained manageable, rupee-dollar parity remained stable despite a little pressure of devaluation to boost textile exports, forex reserves increased to more than record $15.0 billion and economy’s rating in international financial market remained more than satisfying to fetch $800million in May2007 for budgetary support. Capital formation in stocks has touched new heights and is considered to reflect strength of the economy.

Somehow these strong macroeconomic indicators do not go along with independent analysts who see the economy beyond fiscal and monetary indicators on certain obvious accounts. Conspicuous among them are high inflation, huge trade deficit, shortfall in exports by around $1.0 billion, dependence of the economy on external inflows of more than $8.0 billion each year and huge inequality that government policies keep creating among different segments of society during each fiscal year. According to independent analysts and quarterly reports of SBP, expansionary fiscal policy that has a direct bearing of fuelling inflation, weak supply side of economy, lack of full utilisation of PSDP expenditure and efforts to correct structural imbalances in the economy particularly with respect to increasing tax revenues are some of the important factors that did not make outgoing fiscal year a good year for the general public.

The budget


The budget, in terms of outlay, is a mega budget with record outlay of public expenditure under various fiscal heads as well as revenue collection. Its outlay is Rs1.847trillion with the largest ever PSDP expenditure of Rs520 billion and subsidies of Rs204 billion. PSDP expenditure is planned to be met through private and public sector partnership. Revenue collection target has been fixed at Rs1.030547 trillion. Further details of the budget outlay, fiscal targets and important budgetary proposals are as follows:

(1) Budget outlay is 35 per cent higher than the outlay for outgoing fiscal year, and projected revenue collection is 22.0 per cent higher than last year target of Rs835 billion that is likely to be achieved comfortably by the end of current fiscal year.

(2) Non-tax revenue is estimated at Rs337.593 billion. In case of adding it to tax revenue collection of Rs1.030547 trillion, total revenue collection is projected at Rs1.369trillion. After disbursing Rs465.964 billion to the provinces the federal government would be left with a net-revenue of Rs902.176 billion as against total fiscal expenditure of Rs1.599611trillion. The budget document shows heavy dependence on external borrowing of Rs258 billion, bank borrowing of Rs130 billion privatisation proceeds of Rs75 billion to meet the fiscal gap.

(3) Current expenditure is projected estimated to be Rs1.353trillion that is 54 per cent of the total budgetary outlay. This includes Rs275 billion for defence, Rs24.5 billion for safety affairs, *** Rs641.875 billion *** for general public expenditure and Rs520 billion for public development expenditure. Out of public development expenditure of Rs520 billion, federal government is to spend Rs370 billion and provinces share is projected at Rs150 billion.

(4) Projected fiscal deficit of Rs398 billion is 21.0 per cent of budgetary outlay. This is quite high percentage and also quite high in absolute terms. It would generate its own inflationary pressure and tight monetary policy likely to be pursued by the SBP during the FY08 which, might prove to be less effective to contain inflation once again.

(5) 25 per cent increase in the PSDP from Rs435 to Rs520 billion is certainly a big increase which will go a long way in creating jobs, reducing unemployment and alleviating poverty. 52 per cent of it is allocated for development of infrastructure and 48.0 per cent is meant for social sector development and welfare of the people. The projected allocation reflects concern of the government in two development areas. One, power sector development has a serious deficit vis-à-vis around 7.0 per cent growth of economy over past four years. Shortage of power has serious implications for mid-term economic growth targets and cost of production of manufactured goods specially meant for exports. Current power crises are quite serious and it is feared that 1200mw deficit might take at least 2-3 years to bridge the supply and demand gap. The budget proposes to spend Rs40.0 billion on construction of dams. Two, social sector development has a direct bearing on poverty alleviation that the government claims to have been reduced to around 24.0 per cent, despite persisting high inflation over past four years.

(6) Provinces share has been increased substantially to Rs497.2 billion that is 46.0 per cent of divisible pool.

(7) Allocation for subsidies has been increased to Rs204 billion. It includes of subsidy on food items, power and fertilisers.

(8) Defence allocation has been increased from Rs250.0 billion to Rs275 billion.

(9) Rs34 billion has been allocated for Khushhal (people’s welfare) Pakistan scheme.

Relief to low-income group

The budget includes quite a few proposals to provide relief to the common people. A few important of them are listed as follows:

(a) Subsidies worth Rs204 billion will be provided including items of daily use to help the common man.

(b) Salaries of the government employees have been increased by 15.0 per cent and the pensions 15.0 and 20 per cent.

(c) The government plans to combat poverty by selling items of daily use such as rice, edible oil, dales, tea, sugar and other items of daily use at comparatively cheaper rates than the market. It intends to commission 5000 more utility stores with at least one at each tehsile (sub district) level. The stores will also sell discounted medicines.

(d) Old age scheme has been increased from Rs1300 to Rs1500 and minimum salary of unskilled labour has been increased from Rs4000 to Rs4600 pm.

(e) Allocation for Baitulmal (public welfare funds) has been increased to Rs7.5 billion.

(f) Rozgar (employment) Scheme has been allocated Rs105 billion over next five years, with around Rs20 billion a year.

(g) Housing problem will be addressed in Islamabad by constructing 5000 apartments and 3 to 5 marla schemes will be launched to help poor segments of the society.

(h) It is planned to open up 5000 utility stores across the country at the grassroots level to combat inflation.

(i) In order to augment existing health facilities, 815 basic health units are planned to be established.

Industrial sector

Industrial sector did not meet its target. Favourable budgetary proposals have been made to boost industrial sector. Some of them are as follows:

(i) Zero-tariff slab has been proposed to reduce the cost of raw material.

(ii) Custom duty has been withdrawn on import of machinery used in horticulture, furniture, surgical and medical instruments.

(iii) Custom duty on generators to be used for domestic and commercial use has respectively been withdrawn and reduced.

Some concerns

Fiscal deficit of Rs359 billion is projected to be met through bank borrowing of Rs130 billion and foreign borrowing of Rs229 billion. It is around 4.0 per cent of GDP. Two important factors need to be highlighted because of high deficit that could affect economy adversely.

One, it will add to the public debt which is already high in absolute terms. Borrowing from foreign resources is intrinsically linked with political stability in the country. One only hopes that the government successfully rides over somewhat disturbed situation in the country.

Two, the government prefers to borrow from the central bank than from commercial banks to have less debt servicing liability. It builds inflationary pressure as has been happening till now.

Thrust towards an expansionary fiscal policy is likely to persist during FY2008 as well despite tight monetary policy that the SBP has vowed to pursue. It might prove to be difficult to bring down inflation from its current level of 7.9 to 6.5 per cent as has happened during the outgoing fiscal year. High inflation and expansionary fiscal policy could discourage some FDIs that is upbeat because of surplus liquidity available in the Gulf States and western countries and their willingness to help the government in Islamabad for political reasons.

Amount of subsidies doubled from Rs109 billion for current fiscal year to Rs204 billion under various heads starting from power, fuel, fertilisers and food to pension. It will certainly provide some relief to common people.

The increase in subsidies despite being a welcome measure has the inherent drawback of not being the right solution of the issues that can be resolved only through correct economic policies that should enhance tax-to-GDP ratio, boost industrial output, change trade deficit into surplus, increase savings and employment and should curb effectively income inequality that is on the increase according to the Economic Survey 2006-07.

No new taxes have been imposed and a few changes have been made in the existing taxes. One per cent surcharge has been imposed on all but some essential imports.

Some of the taxes that should have been imposed have been left aside. They could have generated substantial tax revenue. For example, capital gain tax that could have been imposed on stocks and real estate business - has not been levied. Likewise, it is unlikely if the provincial governments would take the major step of levying agriculture income tax.

Current expenditure is on the increase. It calls for fiscal discipline to have less dependence on borrowed money for fiscal management.

Conclusion

The budget has been termed pro-people, relief and development oriented and perhaps the best one announced by the government during past seven years.


http://jang.com.pk/thenews/jun2007-w...06-2007/p2.htm
__________________
Time is like a river.
You cannot touch the same water twice,
because the flow that has passed will never pass again.
Enjoy every moment of life.

I have learnt silence from the talkative, toleration from the intolerant, and kindness from the unkind; yet strange, I am ungrateful to these teachers.
Reply With Quote
  #69  
Old Monday, June 11, 2007
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Inflationary responses to productivity shocks


The growth rate in terms of numbers does not matter to a lay man. He concentrates on the prevailing market prices of ordinary goods (especially food related items) in the light of his limited resources

By Syed Kanwar Abbas
Monday, JUNE 11,2007

Section I: Preliminary look at GDP growth and inflation

The current growth scenario of Pakistan’s economy seems to be improving after crisis of late 1990’s when the real GDP growth struck at 3.00 per cent and even reached 2.00 per cent in 2000-01. The commitment of government to boost the economy has resulted into respectable growth of over 8.00 per cent in 2004-05. On the other hand, high inflationary situation has also emerged along with higher growth achievements. The growth rate in terms of numbers does not matter to a lay man. He concentrates on the prevailing market prices of ordinary goods (especially food related items) in the light of his limited resources. The fruits of higher growth should also be realised in the markets. People should enjoy the higher standard of living in the presence of more than 7 per cent GDP growth over span of five years. Inflation should also come down with the State Bank of Pakistan’s effort of tighter monetary policy. However, it does not seem to work in practice at all.

The real GDP growth and inflation are the two variables are the most important macroeconomic indicators of an economy. Figure-1 shows that CPI growth remained higher than the GDP growth for the whole decade of 1990’s. The economy faced higher inflationary pressures in the late nineties. At the beginning of 2000’s there was a downward trend for both Inflation and GDP growth. However, it is observed that GDP growth has remained above the CPI growth for years 2001-04. Afterwards, the CPI growth is again above the GDP growth. This picture shows very interesting pattern and/or behaviour of these two series (GDP and CPI). In table-1, we present a descriptive summary statistics for GDP and CPI growth over period of 1990-2005. This table shows that the real GDP grew at 4.70 per cent and CPI at 8.13 per cent on average over the period of 1990-2005.

The GDP growth is in a nice pace to move ahead while inflation should be checked out. SD measures spread of values from Mean. SD is higher (3.63 per cent) for CPI representing that data points are far from mean (8.13 per cent) compared to the spread of (2.14 per cent) for GDP. CV which is the percentage ratio of SD to mean helps us compare the degree of variation from one data series to another when Means for the data series are different. The CVs are higher for both variables. The CV for GDP growth is higher than that of CPI growth which shows that volatility (risk) in GDP growth is higher than the CPI growth. This means that growth levels are more fluctuating than almost consistent higher levels of inflation. (see table-1)

Our economy is facing higher inflationary pressures and State Bank of Pakistan has projected inflation from 6.7 per cent to 7.5 per cent above the original target of 6.5 per cent for FY2006-07. The Central Bank is continuously working with tighter monetary policy to curb inflationary pressure in the economy. Food inflation is frustrating its efforts in this follow up. Although, the tighter monetary policy operations have successfully worked to reduce Non-Food and Non-Energy inflation from March 2006 level of 6.67 per cent to 5.42 per cent in March 2007, the general CPI has jumped from 6.91 per cent to 7.67 per cent during the same period. The CPI general remained above 8 per cent during August 2006 to December 2006, the period of higher food inflation from the beginning of FY07. The CPI average of general, food and non-food inflation from March 2006 to March 2007 is 7.91 per cent, 9.16 per cent and 7.53 per cent respectively.

Figure-2 shows monthly trend of General, Food and Non-food inflation for the period of December 2005 to March 2007. It is observed that non-food inflation has declining trend since December 2005. General inflation has almost similar trend with variation around its mean about 8.00 per cent. Food inflation remains fluctuating over the period under discussion.

Section II: Targets and achievements of some crops

Table-2 shows a detailed situation of the yield kilograms per hectares for crops including minor and major crops. The situation of vegetables and pulses seems to be very discouraging than rest of the items including in the table. The yield of Potato and Tomato has decreased about 26 per cent and 2 per cent over the corresponding period of 2005. Although the onion yield has increased over the corresponding year, this minor increase in production can not meet growing demand of the people. The yield of three commonly used pulses namely Mung, Mash and Masoor has decreased from its previous level of 2005. The yield of rice, sugarcane, Maize has increased from the level of 2005. Now let us see the targets of FY2007, Potato yield target of 17437 (Kg/ha) is higher than the yield of 13355 (kg/ha) of FY2006. This yield target is also below even the attained yield of 2003-04 and 2004-05. The achieved potato yield (2004-05) is the highest one (18079.46 (Kg/ha)) during period of 2000-06. The achieved onion yield in FY06 is 13824.48 (Kg/ha) and, it also touched the highest level of 14803.98 (Kg/ha) in 2000-01. The average onion yield is 13728.72 (Kg/ha) from 2000-06. The yield of Mung has been increasing since 2000 but lower in FY2006.

The yield of Masoor has increased till 2004 but after awards it is going down year by year and same is the case with Mash. On the other hand, the FY2007 yield targets of sugarcane, Cotton, Rice, Maize, Wheat, Mung were achieved 106.20 per cent, 99.44 per cent, 95.29 per cent, 85.00 per cent, 102.55 per cent and 103.23 per cent respectively in the current fiscal year.1 The revival of major agricultural crops will help achieve the growth momentum of over 7 per cent for our economy and ease the inflationary situation to some extend. (see table-3)

Section III: Production trend of major and minor crops

In the previous section II, we observed that the yield (kg/ha) of Potato, Tomato and Onion is not satisfactory. Figure-3 shows production trend of these daily used cooking items for 2000-06. The average production of Onion, Tomato and Potato stands at 1607.42 thousand tons, 364.92 thousands tons and 1810.77 thousand tons respectively. Tomato production exhibits smoother increasing level than rest of two commodities and it has increased about 75 per cent from the level of 2000 to 2006. Also, the tomato production does not suffer down turn over the half decade except it remains same for 2003-05. During 2001-04, Onion production remains below than the achieved production level of 2000. It has increased 32 per cent in FY06 from its level of 2000. On the other hand, Potato is suffering frequent ups and downs in production level. The potato production has not followed consistent pattern and remained almost declining since its level of production in 2000. Its production has decreased almost 6 per cent in FY06 from its level of 2000.

In Figure-4, we also highlight the production trend of some other crops namely Wheat, Rice, Maize, Cotton and Sugarcane. It is observed that all crops except Sugarcane show constant production trend over the period of 2000-06. However, production of Sugarcane almost follows a declining trend.

The production patterns which we have observed in Figure-3 and Figure-4 can also be linked up with Table-3 which categorically distributes crops into food crops, cash crops, pulses and edible oilseeds. Food crops include Wheat, Rice, Jowar, Maize, Bajra and Barley, Cash Crops includes Sugarcane, Cotton, Tobacco, Jute, Sugarbeet & Guar seed. Pulses include Gram, Mung, Masoor, Mash, Mattar, Other Kharif & Other Rabi Pulses while Edible Oilseeds consists of Groundnut, Soybean, Sunflower etc. It is observed that the production of Cash Crops and Pulses is fluctuating over the period of 2000-06 and does not follow a consistent pattern of increasing production level. Moreover, production is decreasing from 2003-06. The production situation of Food Crops and Edible Oilseeds is also looking volatile and worrisome in the presence of growing demand in the market. (see table-3)

All this analysis shows that the production of various crops remains below than the growing demand in the vegetable market over the period of 2000-06. The slow down or even a minor increase in production can not meet consumers demand. All this has led to disturb Demand and Supply mechanism over the last five years and produced inflationary pressure in the economy. There is need to boost production level of crops to cope with the inflationary pressures.

Section IV: Conclusion

The observed inflation (especially food inflation) in the presence of tighter monetary policy is due to disequilibrium in the demand and supply forces of various crops. We infer that it is decrease in the production of various crops which has resulted into higher inflation. The supply side steps along with tighter monetary policy are important to control inflationary phenomenon. Inflationary trends are more sensitive to the supply side shocks than the impact of monetary policy operations in the short run. Alone, the tighter monetary policy can not overcome inflationary situation and there is need to boost production level of commonly used items like Onion, Potato, Pulses, Tomato etc. as demand side of the economy is growing which calls for adequate supply arrangements in times to come.

TABLE-1: SUMMARY STATISTICS


Variable Mean Standard Deviation Coefficient of Variation

(SD) (CV)



GDP Growth (%) 4.70 2.14 45.45

CPI Growth (%) 8.13 3.63 44.71



Table-2: Yield Targets and Achievements

FY05 FY06 % Change Target Achievement

FY07 FY07

Crops Yield (Kgs/Ha) Yield (Kgs/Ha) Yield Yield (Kgs/Ha) Yield (Kgs/Ha)

Potato 18079 13355 -26.13 17437 —

Onion 13810 13824 0.11 16656 —

Mung 577 546 -5.32 618 638

Mash 491 477 -2.88 526 —

Masoor 597 528 -11.52 592 —

Tomato 10295 10132 -1.58 — —

Wheat 2586 2519 -2.59 2660 2728

Rice 1994 2116 6.12 2211 2107

Maize 2849 2984 4.74 3275 2784

Sugarcane 48887 49229 0.70 50000 53100

Cotton (000 bales) 760 714 -6.05 724 720

Source: Crop Reporting Services of Provinces and Federal Committee on Agriculture, MINFAL, Islamabad.

TABLE-3: PRODUCTION (‘000 ‘TONNES) OF CROPS BY GROUPS

Year Food Crops Cash Crops Pulses Edible Oilseeds

2000-01 25986 45867 621 4091

2001-02 24311 50400 594 4080

2002-03 25890 54,200 930 3,948

2003-04 26854 63946 871 4155

2004-05 29906 50000 1094 5503

2005-06 30395 47185 685 5063

Source: Agricultural Statistics of Pakistan 2005-2006


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The poor have no choices




By Zubeida Mustafa
Wednesday,JUNE 13,2007



WHILE the Pakistan government goes to extraordinary lengths to laud its economic performance, economists have correctly pointed out the growing inequities that have been spawned by President Musharraf’s policies. (See Akbar Zaidi’s “Eight years of missed opportunities” in Dawn of June 10, 2007.)

It was, therefore, like a bolt from the blue to see the Pakistan Economic Survey 2006-07 attempting to prettify the state of poverty in the country by citing a few statistics to paint a somewhat rosier picture.

Needless to say, such number crunching in no way alleviates the pain of poverty for its victims. Perhaps the worst case scenario is one where the distribution of income is so uneven that it creates pockets of affluence in an ocean of poverty. The presence of this concentration of wealth, especially when it is flaunted unashamedly, is a sure recipe for social discontent and violence.

To get round the arguments of their critics, our economic managers have come out with the claim that “consumption inequality” is what really matters and in Pakistan this has increased only marginally from 2001 to 2005. Using this approach, the government tries to absolve itself of the responsibility of not doing enough for poverty reduction.

The Economic Survey admits that income inequity can be most damaging for a country: “High income inequalities act as a drag on the poverty-reducing impact of growth… the actual impact of growth on poverty cannot be realised if the initial distribution of income is fairly skewed. Countries with more equal incomes tend to reduce poverty faster with a given growth rate than countries with more unequal incomes.”

Seen against this backdrop, is it right to dismiss our economic inequalities as marginal and therefore of not much consequence? Is it correct to assess poverty in terms of consumption levels? Even the revelation that in the year 2001, the richest 20 per cent of Pakistanis spent 3.76 times more than the poorest 20 per cent is shocking. In 2005, this ratio went up to 4.15. In fact, in the urban areas, the richest quintile of Pakistan’s population spent more than 12 times than the poorest quintile.

These figures mask the real problems faced by those mired in poverty. Is it strange that an overwhelming majority of the children who die before they reach the age of five are the children of the poor? Is it just a coincidence that those who suffer from gastroenteritis — losing out on working days — and have to be admitted in hospitals are those classified as “extremely poor”, “ultra poor”, and “poor” in the index prepared by our policymakers? Has it ever struck us that because the poor cannot buy bottled water when the rich feed their pets with imported canned food, the former tend to suffer more from intestinal ailments? It is the poor who crowd our hospitals because they fall ill more frequently and need treatment but fail to get it.

It is time our policymakers realised that it is not simply a matter of generating more income for the poor. Of course, that would help but the spiralling inflation neutralises whatever raise in income the poor manage to get. What is more important is that they are provided the basic facilities that they are entitled to as a matter of birthright. The poor should be provided choices so that they can take decisions about important issues in their lives as they deem fit.

Take the case of Shahid, who works as a driver to earn about Rs8,000 a month. He finds it a challenge to make two ends meet. With a family of five (three children and two adults), he frequently takes loans because his household budget consumes his earnings fully — 25 per cent on house rent, 12.5 per cent on transport, 16.25 per cent on two children’s schooling, 41.25 per cent on food and home expenses like laundry, clothes, routine items, and five per cent on miscellaneous items.

One can, in all fairness, ask if Shahid has any choices. Any major illness in the family is catastrophic for his household budget. Off and on his daughters do not attend school because their father fails to pay their fees and the principal asks him not to send his children to school without their fees. The government school in his neighbourhood is so appalling that he would prefer to keep his daughters home rather than send them there.

What is worse is that poverty not only deprives people of choices, it also creates uncertainty and tensions for the future. What if food inflation continues to rise? What if his wife falls ill and he has no money to take her to a doctor? What if strikes disrupt life for a long period? What will he do when it rains and his house is flooded? What if a pickpocket robs him of his money? What if the bus is late in coming and he is late for work again? The list could go on and on. One has to be poor to understand how demeaning poverty can be.

The poor have no financial cushion to absorb the shocks of contingencies such as illness, emergencies and disasters. This creates mental stress for them that may lead to psychosomatic illnesses and even anxiety and depression. If most of the poor have no dreams and motivation, can one really blame them?

If the government were to actually attend to its responsibilities, many of Shahid’s anxieties would disappear. If the public sector schools actually started performing — even on an average level — quite a big chunk of the worries that haunt the poor would not be there. If the local government conscientiously saw to the provision of civic amenities, the poor could hope to get low-cost housing, clean water (so that they are not falling ill frequently), sanitation and uninterrupted power supply.

Are all these not important to the poor as to the rich? In fact, they need these facilities more than the rich because they have no choices. The rich have a substantial cushion and can spend their savings to buy bottled water, fix up generators in their homes, send their children to fancy private schools for the elite, and go abroad for treatment if they fall ill. They have plenty of choices. It is the poor who have no choices.

http://www.dawn.com/2007/06/13/op.htm
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Time is like a river.
You cannot touch the same water twice,
because the flow that has passed will never pass again.
Enjoy every moment of life.

I have learnt silence from the talkative, toleration from the intolerant, and kindness from the unkind; yet strange, I am ungrateful to these teachers.
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