In the formulation of the budget for the financial year 2008-09, the present government was faced with daunting challenges and difficult circumstances, which it had inherited from the outgoing government thanks mostly to the mismanagement of the economy by the Musharraf-Shaukat Aziz team. The budget makers were faced with a serious economic crisis in the form of an extremely high rate of inflation particularly of the food items (15 percent), power shortage and long hours of load-shedding affecting adversely both the domestic consumer and the productivity of the economy, high levels of fiscal and current account deficits (7 percent and 7.8 percent of GDP respectively), and the lowering of the growth rate of the GDP to 5.8 percent in 2007-08. In addition, the economy was suffering from the neglect of human resource development especially of education and health, lack of development of the national infrastructure, growing incidence of poverty, increasing inequalities of income and wealth, and a low tax revenue-to-GDP ratio (9.8 percent). A serious weakness in our federal government budgets has been the high proportion of the current expenditure. During 2007-08, the current expenditure of the federal government amounted to Rs1,516 billion as against the net revenue receipts of Rs.942 billion. So the federal government was dependent on domestic and foreign borrowings even for financing almost one-third of its current expenditure. There was no revenue surplus for financing development expenditure which was totally dependent on internal and external borrowings. Further, the priorities in our federal budgets have been upside down. One would assume that in an impoverished and developing country like ours, developmental expenditure would receive the highest priority and, in case of shortage of resources, would be the last item to be reduced. In our federal budgets, the reverse has been true. In 2007-08, because of the budgetary crunch, there was an acute need to reduce the overall expenditure. This was done mainly by reducing the development expenditure from the estimated provision of Rs 520 billion to actual expenditure of Rs 432 billion. The current expenditure, on the other hand, increased from the estimate of Rs 1056 billion to Rs 1516 billion. It is difficult to visualise a self-sustained process of economic growth without human resource development, particularly without high levels of investment in education and health. Unfortunately, in the eight-year period from 2000-01 to 2007-08 of Musharraf's rule, the nation spent only 1.8 percent of GNP on education as against the international norm of 4 percent. The national expenditure on health was even less. During the nine years from 1999-2000 to 2007-08, the average annual GDP growth rate was 5.4 percent as against the corresponding growth rate of 4.6 percent during the 1990's under the preceding civilian governments. This was the case despite the fact that whereas during the 1990's Pakistan was under economic sanctions because of its nuclear programme, the post-9/11 period saw the lifting of those sanctions and the increased inflow of foreign capital in the form of development assistance, high level of home remittances, re-scheduling of loans and private investment. This increased inflow of foreign capital should have enabled our country to achieve a much higher economic growth rate than the marginal increase actually achieved. However, this was not found possible because of the low rate of national savings which during the last financial year declined to only 13.9 percent of GDP. The emphasis on consumerism by the economic managers of Musharraf and Shaukat Aziz in earlier years was certainly one of the main factors responsible for this unsatisfactory performance. By way of comparison, India saves over 30 percent of GDP while China saves more than 50 percent of GDP annually. The high rate of national saving allows the country to achieve a high rate of national investment which in turn determines the economic growth rate. It is not surprising that India and China with the help of their high national saving rates have been recording annual GDP growth rates of about 9 percent and 12 percent respectively. The moral is that if we wish to raise our annual GDP growth rate to about 8-9 percent, which would be comparable to that of India, we would have to raise our national investment rate to over 30 percent of GDP or above. This will not be achievable unless we raise our national saving rate to over 25 percent of GDP. It seems that the main concern of the budget planners was to reduce the fiscal deficit to 4.7 percent of GDP by containing both the current and development expenditure in the budget for 2008-09. The objectives of accelerating economic growth and eradication of poverty have taken a back seat in favour of restoring fiscal stability. Although an attempt has been made to contain the overall current expenditure at Rs 1.49 trillion in the budget for 2008-09 as against Rs1.52 trillion during the preceding year, the defence expenditure was increased by about 8 percent. An amount of Rs 295 billion has been allocated for defence which with the addition of military pensions and the amount of Rs 63 billion to be received from the US as its contribution under the coalition support fund would increase to about Rs 400 billion. This is too high an allocation for defence for an economy of Pakistan's size. One, therefore, does not see any radical shift in the priorities of the government away from the defence expenditure and in favour of development expenditure and human resource development, which is badly needed by the country. It is unpardonable on the part of the leadership and policy makers to keep on increasing the military expenditure while the common man in Pakistan is suffering under grinding poverty. Our military planners need to be reminded that the Soviet Union disintegrated not because of the shortage of weaponry and armed forces but because its weak economy and decaying political system could not support its heavy military super-structure. Tax revenue receipts are expected to increase by about 23 percent in 2008-09 over the corresponding figure during the last financial year. However, after taking into account the inflation rate of about 15 percent and the expected GDP growth rate of about 5.5 percent, the tax revenue-to-GDP ratio is likely to remain at the low level of about 10 percent as against the average of 18 percent for other developing countries. So no serious attempt has been made to widen the tax net with a view to generating additional revenues. Consequently, the government would have a very limited fiscal space for providing relief to the poor against the high rate of inflation and the reliance on borrowings for financing both the current and the development expenditure will remain high. Further, because of the limited fiscal space, extremely modest targets for the development expenditure and the GDP growth rate have been set (Rs 515 billion and 5.5 percent respectively) during 2008-09. However, the reduction in the deficit financing through bank borrowing together with the tightening of the monetary policy by the State Bank may help in controlling inflationary pressures somewhat. Barring some increase in the interest rates on National Saving Schemes and in the duty rates on the import of luxury vehicles and items, no serious effort has been made to raise the national saving rate which is a critically important factor in the economic development planning. Despite some declaratory statements to the contrary, one also does not see our leaders and senior civil and military officials refraining from an ostentatious living style to encourage the nation as a whole to adopt a simple way of life which is the need of the hour. In short, the budget for the current financial year barely tackles the serious problems of the slow rate of economic development, eradication of poverty, reducing the vast inequalities in income and wealth, providing relief to the common man against the high rates of inflation and unemployment, and focusing on human resource development. It is another example of the continuation of the policies of status quo which in the past have restricted the growth rate of the economy and established an exploitative economic system in the country favouring the elite and the rentier classes. The writer is a former ambassador. E-mail: