Abdul Hafeez Shaikh, the newly-appointed finance minister, presented his first and the government’s third federal budget in the National Assembly on June 5, 2010. Budget 2010-11 is the first budget under the new National Finance Commission Award and as such it posed difficulties far many analysts, experts, trade bodies and other segments of our society in understanding the budget.
The varieties of comments made in the print and the electronic media on the budget reflect such misunderstandings. One such misunderstanding deals with the size of the allocations made to the health and educational sectors.
Dr Shaikh’s budget speech was unconventional in several respects. Firstly, more than half of the speech was extempore, reflecting his confidence in the budget. No finance minister has ever moved an inch away from the written text of the budget speech. Secondly, Dr Shaikh gave an Economics 101 lecture to his fellow parliamentarians, particularly explaining inflation, the burden of public debt and the crowding out phenomenon.
Thirdly, he was upright in acknowledging the many failures of his government in the last two years and expressed his resolve to address the challenges. Fourthly, he was extremely critical about the performance of the Public Sector Enterprises (PSEs) and the damage they have caused to the economy. In so doing, he indirectly criticised his own government in treating these enterprises as sources of unproductive employment.
Fifthly, he bitterly criticized his predecessor for “indiscriminate borrowing” and doubling public debt in a short period of time. This requires courage to call spade a spade. I am glad that I was not the only person to have expressed concerns on such indiscriminate borrowings and the rising debt burden.
Budget 2010-11 has been presented with a view to setting new directions for a responsible economic and fiscal management. This budget is a major departure from the last two budgets as it aims to make concerted efforts to address the prevailing economic challenges.
Pakistan’s current economic challenges include: declining investments and slower economic growth; rising unemployment and poverty; persisting double-digit inflation; unsustaining debt burden; depreciating exchange rate; power mismanagement; and waning confidence of the private sector.
The first and foremost principle in addressing the challenges listed above is to stabilize the economy. Macroeconomic stability is the pre-condition to generate growth momentum. Stabilization is therefore the main objective of the Budget 2010-11. Through this budget, the government intends to reduce inflation which is the best relief that it can provide to the poor people of this country. Targeting budget deficit at 4.0 per cent of GDP represents the government’s resolve in reducing “twin” deficits (budget and current account) and bring debt situation under control.
Reduction in deficits and burden of debt would release pressure on interest rates which will allow the SBP to reduce the discount rate, generate growth momentum and create productive employment opportunities.
While stabilizing the economy through the budget the government has not forgotten the poor and the fixed income group. The allocation to the Benazir Income Support Program has been increased from Rs46 billion to Rs50 billion, hence benefiting four million families. This is a targeted cash transfer program for the poor alone to minimize their difficulties caused by higher inflation in general and food prices in particular.
The budget also talks about the exit strategy of the beneficiaries of the BISP in line with the international best practices. The salary of the government servants has been increased (50 per cent) beyond their expectations. The pensioner has also not been forgotten as he would see it rising by 15-20 per cent. These were the human face of the budget.
The budget also acknowledges the dominant role of the private sector in promoting growth and creating employment opportunities. The role of the government should only be restricted to creating conducive environment for the private sector through right policies and investment in physical and human infrastructure. Currently the government is actively involved in several public sector enterprises such as PEPCO, PIA, Railways, Pakistan Steel, PASSCO, TCP, NHA, Utility Stores etc.
These PSEs are inefficient and poorly managed and are a burden to the national exchequer. Can a poor country like Pakistan afford to pay Rs245 billion from the budget to keep them afloat? The answer is obviously no.
Dr Shaikh has committed himself to restructure these eight PSEs in 2010-11 and make them financially solvent as part of the reform agenda. History around the world has shown that such PSEs cannot be made financially solvent through restructuring.
The only solution is to bring them on privatization mode and sell them to the private sector even if we get a single rupee. At least it will save Rs245 billion of the national exchequer which can be diverted to the development program. It is sad that Dr Shaikh did not talk about privatization of these PSEs and did not put any amount under privatization proceeds in the budget. Do we sill need ministry of privatization?
Dr Shaikh and his team should be congratulated for presenting a sound budget in a most difficult and challenging time. This budget is fully consistent with my thoughts which have appeared in this column. This was the only way forward to address the current economic challenges. This budget is not a populist budget but a realistic one.
Budget 2010-11 can be termed as stabilization budget with human face and reform agenda. Mr Prime Minister! Your economic team has presented a sound budget. It would need your support in executing and achieving the revenue, expenditure and budget deficit targets. These targets, though ambitious, are yet achievable, provided the provincial governments and yourself keep supporting Dr Shaikh and his team.
Note By Riaz Haq: Here are some of the highlights of Pakistan Economic Survey 2009-2010 released by Ministry of Finance:
* Gross domestic product (GDP) was at 4.1 percent as compared with 1.1 percent of the previous fiscal year.
* Inflation is less severe as compared to last year’s 22 percent but is still in double digits at 11.5 percent.
* Current account deficit is expected to decline to below three per cent of Gross Domestic Product during the outgoing fiscal year.
* External current account deficit was contained to 5.6 % of GDP (US dollars 9.3 billion) in fiscal 2008-09, from a high of 8.3 % of GDP in 2007-08 (US dollars 13.9 billion)
* Economic growth in 2009-10 is provisionally estimated at 4.1 %, higher than the targeted growth of 3.3% percent.
* The fiscal deficit was slashed to 5.2 % of GDP in financial year 2008-09, from 7.6 % of GDP in 2007-08, a fiscal adjustment of 2.4 % of GDP.
* Foreign Exchange Reserves have been rebuilt to nearly dollars 16 billion, from their low of under dollar 6 billion in October 2008.
* International credit rating agencies upgraded Pakistan from CCC plus to B Minus by S&P, while Moody’s revised its outlook to Stable.
* Manufacturing Sector posted a positive growth of 5.2 % during the current fiscal year.
* 44 % of population has access to sanitation, while 65 % to clean water.
* Pakistan has become the largest user of Compressed Natural Gas (CNG) in the world, as per the statistics issued by International Association of National Gas Vehicles on CNG. Presently, 3105 CNG stations are operating in the country and 2.4 million vehicles are using CNG as fuel.
* Literacy Rate has improved from 56% to 57%. Literacy rate in Punjab is (59 %), Sindh, (59%), Khyber Pakhtunkhwa (50%) and Balochistan at (45%).
* Social protection measures were expanded from around Rs 8 billion two years ago to around Rs 80 billion this year.
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