Never before, it seems, had
the country ever experienced such a grave financial situation when the economic
managers might
have felt that budgeting of economic resources is beset by so many challenges
and complexities amid very few available options to pull out the economy from
the edge.
In today’s context of the
country, which involves lowest growth of GDP, an all-time highly declined
investment in Public Sector Development Programmes (PSDPs), energy crisis, and
high incidence of circular debt will significantly impact the budget decisions.
Other factors, which are
not so much of our making, such as the quantum rise in the prices of petroleum
and its products, vagaries of nature in the form of most devastating 2010
floods, and heavy expenditure due to war against terror have further
complicated the state of economic affairs.
However, despite all these
serious challenges, the problems are not so much due to lack of resources but
because of poor governance and increased volume of non-productive
expenditures besides lack of desired level of competence and a missing
commitment of concerned government functionaries. These are the key factors
responsible for country’s abysmal economic situation which need to be addressed
in the budget.
The fiscal deficit, which
had been most adverse during the recent years, is again found widening much
higher than the original and revised targets despite taking some measures to
strengthen the budget execution.
Although significant
reforms in the tax administration regime have been taken to improve the volume
of tax collection, these are not only short of targets but also have led to
form the lowest tax-GDP ratio as compared to other developing countries.
This is one of the prime
reasons of widening the gap between the volume of revenue collection and the
size of expenditures, resulting into fiscal deficit and weak macro-economic
framework. There is an apprehension that the fiscal deficit is likely to end up
by 6.2 or around of GDP which may not only have very adverse effects on the
economy but may leave a very damaging impression on the credit agencies.
The devastating 2010
floods, payment of heavy inter-corporal debt in the energy sector and very huge
sum expenditure to maintain law and order, including war on terror have also a
very negative impact on fiscal deficit. Subsidies to the public sector
enterprises and recent efforts to keep petroleum prices lower in the country
have also proved instrumental in budget deficit.
There are key challenges of
efficient use of resources and their allocation along with improvement in
governance which is at its lowest ebb. According to one estimate, at least
Rs300 billion can be saved by plugging leakages and irregularities in public
sector expenditures.
The budget deficit is one
of the most significant factors responsible for inflation which has crossed 15
percent so far, and is believed to have eroded the purchasing power of the
country by sixty percent during the last three years.
The development expenditure
has been ruthlessly curtailed in an attempt to control the size of fiscal
deficit while badly affecting the growth rate. The IMF is reported to be
insisting that the budget deficit should be curtailed within the range of 4.3
percent of GDP in the next financial year. It will be a challenge to the
economic managers to find ways to stick to this target and also protect
allocations to be made to the PSDP.
As regards the debt
position, the country is again found slipping into a quagmire of heavy debt.
The rising trend was found as its amount rose from Rs7277 billion (57.1 percent
of GDP) at end June 2009 to Rs8160 billion (55.6 percent of GDP) as at end June
2010 and to Rs.9470 billion (55.3 percent of GDP) by the end of December 2010.
The external debt has increased significantly and a huge amount is being paid
to retire foreign debt showing an increase in a short period by 48 percent from
the amount paid during the first quarter of the current financial year to the
second quarter. The principal amount paid against the total amount and the
interest thereon is mounting.
It is a matter of concern
that the total debt liabilities have increased manifold. Resultantly, Pakistan is
classified as highly indebted country in the region. Indeed, financial
assistance provided by IMF has solved the immediate problem of correcting the
extremely adverse balance of payment situation along with some positive impacts
on the economy but escalating public debt does not bode well for macro-economic
growth in medium and long run.
Even at present, the repayment
of debt costs about one fourth of the revenues collected by FBR. There is a
strong likelihood of further burdening of economy by the incidence of debt when
repayment of the existing loan under the Stand-By Agreement will commence in
2012.
During the current
financial year, while the economic indicators like the fiscal deficit, growth
rate, and inflation are showing negative trends, the data regarding current
account balance and the exports receipts are encouraging. The economy posted a
current account surplus of $ 748 million during the first ten months of the
financial year against a deficit of $ 3.456 billion in the corresponding period
a year ago.
The surplus resulted on
account of increase in exports despite serious power outages and law and order
situation along with the historic record of the overseas workers’ remittances
which is over 11 billion so far during the current financial year while the
country have no significant policy measures for enhancing the
remittances.
It is high time that the
economic managers should develop some policy and institutional mechanisms to
capitalise such encouraging trends which can ultimately lead the country
towards economic betterment and independence. No doubt, it should not be taken
as sustainable source for improving current account.
Even in the normal economic
circumstances, the budget is considered a most important instrument to give
direction to the economy, provide macro-economic stability and determine the
growth along with the pattern of distribution of its gains. In the present
circumstances, when the economy is passing through a most critical phase of its
history today, the nation is looking at the budget whether it may end their
economic and social sufferings or may add to their woes. Amid the odds, it is
to be seen how the opportunities are carved out by economic managers to ensure
optimisation of available resources and from some favourable economic trends
emerging recently.
The solution of economic
ills should be addressed in the budget through adopting sound and scientific
fiscal policies. Unless there are conscious efforts to widen the tax net,
instead of focusing on current approach of reinforcing rigorous taxation on
existing tax payers, there is hardly any chance of improving the financial resources.
Stringent measures are
needed against those evading taxes and submitting false returns to hide their
real income. Although the Federal Board of Revenue (FBR) is said to have
prepared a list of 700,000 tax-evading people among the high income groups but
the success in bringing them into the tax net requires strong commitment of
government machinery.
The writers are
researchers at Sustainable Development Policy Institute (SDPI), Islamabad. They can be
contacted at hyder@sdpi.org and gorchani@sdpi.org
http://www.jang.com.pk/thenews/jun2011-weekly/nos-05-06-2011/pol1.htm#5
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