June 08 , 2012

Pakistan: New Budget & Shape of Economy

 

Pakistan’s Finance Minister, Dr. Abdul Hafeez Sheikh, presented to the country’s Parliament on June 1 the budget for fiscal 2012-13 and the official Economic Survey for the preceding year. Even a cursory study of both leaves the impression that the country is moving in the right direction economically though its speed could and should have been at a much faster clip, particularly as a vast majority of the people ( upto74 % one estimate claims) are still wallowing below the poverty line of $2 per person per day.

However dim the signs may be, the Economic Survey for 2011-12 does offer hope of better days to come and an economic performance befitting the aspirations of an ambitious, dedicated and hardworking people. Wishes of the people have remained unfulfilled owing mainly to rulers’ incompetence, poor planning and lack of dedication of the officials concerned to their assignments.

During the year covered by the Survey, the economy grew by 3.7 % from 2.4 % in the preceding year. This growth rate was registered despite the energy shortages, floods and difficult world economic environment caused by a relentless recession that dampened demands for Pakistani manufactures and raw materials. Pakistan would have defaulted on meeting its financial obligations abroad had there not been the remittances home of Pakistani workers abroad amounting to 12 billion dollars yearly.

Notably, the nation’s per capita income in dollar terms rose from $1073 to $1254 in 2010-2011.

The budget for 2012-13 unveiled by the Finance Minister on June 1 on the floor of the House, amid loathsome uproar from the opposition benches, envisages an outlay of Rs. 2960 billion. While the Minister continued reading his written speech, members of the Parliament traded blows and slaps, pushed and shoved each other. This rowdy behavior, unbecoming the dignity of the elected representatives, was fit for a fish market, or the arena of rowdies. It derogated the significances of the fact that this was the first time in Pakistan’s history that an elected government was presenting its fifth consecutive budget before the end of its tenure. Incidentally, Benazir had staged such a show while Finance Minister, Ghulam Ishaq Khan, was reading his budget speech. I was in Islamabad at that time and had to witness the ugly and revolting uproar.

Dr. Hafeez Sheikh informed the Parliament that the budget proposed no new tax in view of the forthcoming national elections. It estimated a total outlay of Rs.2960 billion, total federal receipts of Rs.3234 billion which is 18.3 per cent higher than those last year.

He said the budget contains measures for movement towards self-reliance, promotion of growth through Rs.360 billion worth of development program, protection of vulnerable segments of the society from the impact of the global recession through subsidies and social safety nets and allocation of almost 200 billion rupees to address the challenge of power shortage. The allocation for the social security scheme called Benazir Income Support Program is being enhanced to spread further its safety net.

Income Tax exemption limit, he said, is being jacked up from Rs. 350,000 to Rs. 400,000. This would benefit 1.46 million taxpayers. Government servants’ salaries and pensions have been increased by 20 percent. To address unemployment, allocations have been made in the new budget to provide sixty thousand internships to college graduates and forty thousand to Master’s degree holders.

He claimed that the government had taken not a single penny from the IMF since May 2010; it indicated that the country’s economy could survive without IMF loans. Matter of fact, the government had repaid $1.2 billion to the IMF during the past year from domestic resources.

The above narration based on the claims of government presents the shiny side to the situation. The dark side is indeed much bigger and quite saddening. Almost the entire country sinks into darkness for hours every day owing to lack of power supply. Industries have to abandon production for want of electricity. Many are unable to meet their external commitments of supply of their manufactures owing to the absence of power, an essential input in any industrial activity. Industrial labor takes out demonstrations against frequent load shedding. The media reports such agitations taking place in all parts of the country. The allocation in the budget for the power sector is ludicrously low. Even the existing power production capacity remains unutilized owing to the inability of official and private agencies to collect the bills sent to consumers and to pay the dues of the power producers. Then there are wide spread theft of power and illegal connections.

What Pakistan needs is the construction of major power-producing dams like Tarbela and Mangla. Instead we have engaged private power producers and foreign rental stations as they offer the convenience of quick kickbacks! Inspiration always comes from the top. And, it suits the ruling elite to spread the canker of corruption throughout the society to turn an event of infamy into a point of attainment and even of pride. At the moment, the crooks have joined hands to draw strength from their unity and thwart any effort to dislodge them. The army, the obvious alternative, is involved in so many issues with the US that its takeover is unlikely to be accepted and recognized by the US and other Western states. Its hands are thus tied.

The mother of many of the country’s economic problems is the elite-based

taxation system that grants exemptions to the rich and mighty. They are virtually immune to any tax liability. The tax burden is mainly on the shoulders of the common man who has to pay indirect taxes. The country is thus being financed by indirect taxation. Pakistan ranks 197 among 210 countries in terms of tax-to-GDP ratio. Agriculture, which is the source of the wealth and political power of the ruling elite, is outside the direct tax regime -even in the 21 st century.

Resource mobilization is the only panacea to fix Pakistan’s economy. The rich and mighty, the big landlords, will have to contribute to the revenue of the country to save it from total collapse and being declared a failed state.

Dr. Hafeez Sheikh has prepared the budget within the existing constraints. Hence, it does not include any measure calculated to effect a basic change in the structure of the economy. ( arifsyedhussaini@Gmail.com )