Apparently desirous of achieving the very goal of macroeconomic stability through strict fiscal discipline and structural reforms, the PML-N government has presented a ‘pro-growth and incentive-laden’ federal budget for the FY 2016-17. With a total outlay of Rs4.3 trillion, the deficit budget has set a number of ambitious fiscal targets for the forthcoming financial year. It aims at achieving the 5.7% GDP growth rate after substantially reducing the fiscal deficit through a better tax collection and expenditure control. The pro-agriculture budget has also offered some incentives to farmers to revive the troubled agriculture sector of the economy. These measures range from providing subsidy on agricultural inputs and electricity, to the sales tax exemption on pesticides and a better access to the agricultural credit facilities.

Notwithstanding the tall claims made by our economic mangers about the economic stabilization, presently Pakistan’s economy is facing numerous grave macroeconomic challenges. It has been under enormous inflationary and recessionary pressures for a long time. The chronic economic maladies like low GDP growth rate, ever-rising public debt, high fiscal deficit and low tax-GDP ratio continue to plague the ailing economy. In the proposed budget for FY 2016-17, the fiscal deficit has been projected at 4.3% of the GDP. Thus the Rs1.3 trillion fiscal deficit is now equivalent to approximately one-third of the total budget outlay, which is certainly quite alarming. It only means that after meeting the expenditure in three main areas- debt servicing, defence and civil administration, the national kitty will have no funds for Public Sector Development Programme (PSDP), and even for subsidizing the loss-making state-owned enterprises (SOE’s). Therefore, in order to make both ends meet, the government will have to opt for deficit-financing- which simply means more public borrowing.

A decade ago, the Fiscal Responsibility and Debt Limitation Act, 2005 was enacted primarily to “eliminate the revenue deficit and reduction of public debt to prudent level by effective debt management”. Under this Act, the federal government was supposed to reduce the fiscal deficit to nil until the year 2008. Similarly, it was also incumbent upon the government to let the public debt not cross the 60% of the GDP threshold in any circumstance. However regrettably, successive regimes in the country have been ignoring altogether these mandatory legal provisions. Now, instead of enforcing the provisions of this law in letter and spirit, the incumbent government has extended the original deadline until the year 2018 by introducing an amendment in the said Act this year.

Owing to some reasons, the annual federal budget is gradually losing its significance and relevance as a primary instrument of fiscal policy in the country. In fact, it has more become an annual balance sheet, unwantedly prepared by the federal government, merely as a mandatory constitutional requirement. Presently there are a number of macroeconomic factors which necessarily determine both the fiscal and monetary policy in the country. These factors alone not only shape the contours of federal budget but also evolve the economic outlook of the government.

In the face of its macroeconomic compulsions, the federal government has to constantly make necessary fiscal and structural readjustments in the form of a number of subsequent ‘supplementary budgets’ and periodical SRO’s, diminishing the utility and significance of the formal budgetary operations. Reportedly, now the federal government is also trying to secure parliament’s ex post facto approval for an Rs261 billion supplementary budget to cover the extra governmental expenditure of the outgoing financial year. This act simply make a mockery of the very practice of preparing and approving an annual budget by the federal government.

In the absence of a documented economy and efficient financial regulatory mechanism in Pakistan, the ‘fact and figures’ stated by the finance minister in the name of federal budget can by no means be verified independently. One wonders how does the government mange to precisely prepare the future plans for revenue and expenditure, since nobody even knows the exact demography and current population of the country. At present, there is also a common tendency in the country to view the annual budget in its microeconomic perspective, largely in terms of its instant effects on the individuals, ignoring its substantial macroeconomic aspects. All these factors have significantly undermined the very credibility and relevance of the formal budgetary manoeuvring by the federal government each year.

At present, Pakistan is facing numerous macroeconomic challenges in the form of sluggish economic growth, high fiscal deficit, heavy public debts and a very low tax-to- GDP ratio. Besides this, the crippling energy crisis has made the things even worse. Now these issues are adversely affecting all the sectors of economy by becoming the greatest hurdle in the way of economic stabilization, growth and development. Therefore, instead of being overly obsessed with the annual budgetary arrangements made by the government, there should diligently be set some periodic fiscal goals to rectify the chronic economic maladies of the country. For this purpose, all the effective fiscal and monetary tools of macroeconomics should be employed to overcome the underlying economic woes.

Pakistan has to carefully set its long and short term promising but pragmatic fiscal targets to step out of the current economic vicious cycle. At this stage, a sustainable 7-8% GDP growth rate and upto 15% tax-to-GDP ratio will certainly help overcome the most pressing problem of fiscal deficit in the country. In the long run, it will also ease the cumbersome burden of heavy public debt on our ailing economy. Similarly, by spending the surplus budgetary resources on the infrastructural and social sector development, we can also ensure the so-called Keynesian multiplier effect on our economy in future. It will also help stabilize the economy, eventually paving the way for economy to attain the ‘take-off stage’ of economic growth and development, as did all the so-called Asian Tigers.

All the sectors of the economy will have to play their due sectoral role efficiently to meet the desired fiscal targets. The government should also focus on the revival of each ailing sector of the economy separately. But obviously, first of all, the energy-deficient country will have to evolve a vibrant energy policy to overcome its chronic energy crisis. Similarly, Pakistan also needs to introduce an effective tax regime, a progressive tax culture and an efficient tax collection mechanism to successfully achieve its revenue targets.

In his recent budget speech in the Parliament, the Finance Minister Ishaq Dar unveiled the framework of incumbent government’s three-year medium term macroeconomic strategy spanning the period 2016-2019. Under this strategy, the federal government will endeavour to achieve the fiscal targets like 7% GDP growth rate, 13.9% tax-to-GDP ratio, 21% investment-to-GDP ratio and the reduction of fiscal deficit to 3.5% of GDP within next three years. Undoubtedly, this is a right step taken by the government in the right direction. But only time will tell how serious and sincere the PML-N government is in devising and enforcing this framework fiscal strategy to steer the troubled economy out of the woods. Obviously the proof of the pudding is in the eating.

Recently, the Finance Minister has also claimed that the economic policies followed by the government would soon transform Pakistan into an Asian Tiger. It may only be the wishful thinking or mere an over-optimism on the part of our ‘visionary’ federal minister. Obviously still Pakistan has a long way to go before achieving the state of economic stabilization, and then eventually reaching the status of an Asian Tiger in future. Presently Pakistan is also anxious of reaping the benefits of $46 billion ‘game changing’ mega economic project- the China Pakistan Economic Corridor (CEPEC). Certainly, this project will greatly help Pakistan reviving its ailing economy in some way. But Pakistan will certainly not be able to change its economic fate without improving its economic fundamentals through prudential regulation and strict fiscal discipline. Observably, an extensive indigenous effort has always been the secret behind every economic success story in the contemporary world.