Budget-making is an exercise that must remain the domain of human beings rather than that of computers. Given that statistical data of revenues collected and projected spending thereof have to be made coherent into an annual plan, budgets must facilitate the living in coping with the basic necessities of a comfortable and dignified existence rather than making the rich richer. Unfortunately we live by a philosophy of “reverse swing”, the common man’s common needs have no priority, the priority of gift-of-the-gab being to favourably impress whoever is the primary ruler of the country, then satisfy the World Bank, IMF, Asian Development Bank (ADB) and not the least the wealthy and influential elite, in that order. Statistics brush aside the needs of the masses, the buzz-word being “trickle-down” economics and a treasury bulging with foreign exchange reserves. As long as macro-economic indicators are favourable, micro-economics can play catch-up! The Indian masses recently gave BJP’s “India Shining” electoral plank a stinging rebuke, could this be an early warning signal for our rulers who depend too much for the country’s Budget-making on computers impersonating as humans?
Look at what India’s new Harvard-educated Finance Minister Chidambaram is inheriting from the BJP, viz (1) an extremely high economic growth at 10.4% with GDP growing at 8% (2) overflowing foreign exchange reserves (in excess of US$ 100 billion) and (3) consumer spending on a roll. On a smaller scale, Pakistan compares relatively favourably on a pro-rata basis. With such favourable economic indicators any political party in the developed world would have been a shoo-in at electoral time, the “ignorant and ungrateful” Indians reacted adversely because these benefits were visible to only a third of the population. Adverse factors posing problems for the new incumbent, viz (1) the financial market is presently volatile because in the face of “Left Front” partners of Congress and an anticipated roll-back of economic reforms (2) growing unemployment despite considerable foreign direct investment (FDI) (3) deteriorating fiscal deficit and (4) rising world fuel prices. All well and good but can Mr Chidambaram balance high trajectory of growth with visible socio-economic initiatives to assuage the aspirations of the masses for basic needs, and if, when and where these are available, at affordable prices? This is true more or less the dilemma for Shaukat Aziz in preparing Pakistan’s budget.
Pakistan’s major problem is unemployment followed closely by a host of socio-economic necessities. By now we should disabuse ourselves of the possibility of foreign direct investment (FDI) arriving in droves to create more job opportunities, money is only attracted if more money can be made. To create a conducive environment for FDI we must maximize internal investment to invigorate our domestic economy, only possible by cutting bureaucratic red tape and controlling prices of essentials and giving incentives for increased production and lowered prices, particularly electricity. Local entrepreneurs need encouragement by a broad range of incentives. “Manufacturing sector” is certainly looking up, i.e. being revived, it must get priority remembering that all booming economies depend upon “services” as a force-multiplier. Job creation being relatively inexpensive in comparison, most jobs are being created in the “services” sector. In a dog in-the-manger policy, the financial gnomes inhabiting Islamabad are putting more and more taxes on the “services” sector. The unrestricted growth in the private security companies created 35000 –” 40000 “khaki collar” new jobs annually for a decade till viz (1) the promulgation of the ordinance governing private security companies (the idea of exercising some control is sound, unfortunately the implementation thereof gives opportunity to the bureaucracy for licence and that is not a pun) and (2) heavy taxation deduction at source with retrospective effect is counter-productive to growth. With an 45000 –” 50000 servicemen retiring at an average age of 45 years annually, how many will find gainful employment in sectors other than private security? And what will this trained manpower do without money to put food on the table for their families? IT, telecommunication and media have done substantial job creation in the urban areas for white collar workers, compared to the negligible number of new jobs in the primarily agricultural rural area.
Basic necessities are a must at affordable prices. While people do want TV sets and fridges in their homes, ask the 30-35% of the population who would be happy if they could only get food and potable water and a usable shelter? What use is electricity and gas if the people cannot afford to pay for them? WAPDA and KESC must privatize “distribution” and “bill collections”, at the moment the easy way is to burden the consumer with more and more tariffs. This has a snowball effect down the line for the commercial consumer viz (1) it raises the cost of production for “manufactures” (2) thereby reducing sales revenues (3) thereby putting pressure on “manufacturing” profit. As for the domestic consumers viz (1) it diverts funds from other uses (2) thereby pressuring the family budget for education, health, consumer goods, etc. As a dampener on the economy, its effect is force-multiplied many times over. The masses need “atta” at the very least but if wheat and atta are going to be smuggled to Afghanistan we are at the mercy of hoarders and blackmarketeers not to mention the bitterness between the Provinces, particularly against the Punjab, if wheat/atta movement is restricted. While retaining a portion of our storage capacity for strategic needs, the government would do well to bring in the private sector to manage the wheat storage capacity, presently available in abundance but managed inefficiently. Additional storage SILOS on BOT basis was, a money-making scam that almost passed the ECC until an honest official stood up and got counted (and probably put paid to further career advancement). If there is excess money around, let us target the poor, forgotten farmer, as an agri-based economy we need to maximize the returns with investments in the agriculture sector, presently given lip-service only.
Separate allocations in form of aid and grants for “Poverty Alleviation” is not only an exercise in futility but a matter of shame to have a special fund for poverty-alleviation programs for the 30-35% of the population below the poverty line, and 30-35% (of the severely affected middle class) on a fail-safe line that could go either way. The budget has to be crafted in such a way that it inherently meant to uplift the common man. Why not allocate “Wealth Accumulation Restriction Fund” to adequately fund NAB to catch those who have bilked the country of billions by illegal means, not only will we recover looted money but it will act as a deterrent against the callous and the corrupt because of whom the country (and the masses) are in the sorry state they are in. Third world countries tend to lurch from extreme to extreme, Pakistan is no exception. After nationalizing everything in sight in the early 70s, we have been trying to privatize everything in sight in the 90s, assiduously adhering to the self-destructive maxim, “privatize profits, nationalize losses”. We must not let go the controls of national security-sensitive enterprises like PTCL, PSO etc. Privatize them certainly but offload volumes in small lots in the local stock markets like Dr Hafeez Shaikh successfully did for OGDC and is now doing for PIA in sharing the national wealth evenly, making partners and shareholders out of the masses! The search for a “strategic investor” is an incorrect strategy except in some cases, these investors only use Pakistani expertise to repatriate profits from enterprises that were essentially always profitable but were run into the ground by inefficiency, bad management and outright corruption.
Budget making must concentrate on maximizing the output of the farm sector by judicious incentives to the farmers, with incentives to both the manufacturing and services sector to maintain growth at or above 15% per annum, with inflation kept under tight control. The budget must be people-oriented, not a PR exercise in personal image-making. The time for stabilizing the economy is over, promising relief and no extra burden is not enough. We will soon know if Shaukat Aziz, who is a pragmatist and despite his banker label has always been a politician, has indeed transformed himself into populist economist rather than simply being a deposit-taker.