PTI government’s mini-budget presented on 18 September was a golden opportunity for the new government to come out with bold new policy measures so as to usher in an era of progress and prosperity in accordance with the promises of naya Pakistan. Unfortunately, the new government miserably failed in the first test that it faced in the management of the economy. Instead of rapid economic growth, the mini-budget portends economic slowdown. Instead of improving the plight of the masses, it carries the message of growing hardships for them through higher indirect taxes. There are no new measures in the mini-budget to eliminate or reduce the wasteful current expenditure of the government. Contrary to the slogans of PTI, it also appears that the new government will continue the past policies of reliance on internal and external loans to meet its budgetary deficit, which will remain at a high level, thus, further increasing the burden of the public debt. In fact, a close look at the PTI’s mini-budget shows that the naya Pakistan is just old Pakistan under new wrappings.

When the PTI government took over the reins of power at the Centre, it faced several daunting challenges on the economic side. One of them was the huge gap between the federal government’s projected net revenues amounting to Rs.3070 billion as against total current and development expenditure estimated to be Rs.5246 billion for the year 2018-19, according to the budget approved under the preceding PML (N) government. The second challenge was on account of the unsustainable current account deficit primarily because of the country’s low level of exports and rapidly growing imports. The current account deficit shot to a record high of $17.99 billion (5.7% of GDP) at the end of the last fiscal year as against $12.44 billion a year earlier. The third challenge confronting the present PTI government was the low GDP growth rate which was not enough to put Pakistan on the road to rapid progress and prosperity, alleviate poverty, or create enough jobs for its growing workforce. Pakistan’s GDP growth rate did increase to 5.8% in 2017-18 from 3.7% in 2012-13 under the PML (N) government. Still it was far below the GDP growth rate of over 7% achieved by India in recent years or the desirable GDP growth rate of 9%.

The fundamental cause for Pakistan’s dismal performance in the economic field is the country’s low national saving rate which was 11.4% of GDP in the last financial year. By way of comparison, India’s national saving rate has been generally around 30% of GDP. National savings provide the pool of resources available for investments in various sectors of the economy, which determine a country’s GDP growth rate. The higher the national investment rate, the higher would be the GDP growth rate. The difference between national investment and savings translates into trade deficit. The higher the difference between national investment and savings, the higher would be the trade deficit. Thus, the secret of raising the GDP growth rate and reducing the trade deficit lies in raising our national saving rate substantially. Simultaneously, we need to expand the tax net and increase tax revenues significantly so as to meet the government’s current and developmental expenditure without running into unsustainable fiscal deficits.

Looked at from this point of view, the mini-budget presented by Finance Minister Asad Umar was extremely disappointing. The PTI government came into power on the slogan of ending wasteful expenditure and corruption. However, the mini-budget is conspicuous by the absence of measures to reduce current expenditure which would in fact increase from Rs.4178 billion in the budget presented earlier by the previous PML (N) government to Rs.4413 billion according to the PTI government’s mini-budget. The obvious conclusion that one can draw is that either the PTI’s claims of wasteful current expenditure by the previous government were baseless or it lacks the will and the capacity to eliminate or reduce it.

A look at the mini-budget shows that defense alone accounts for Rs.1359 billion including Rs.1100 billion for Defense Affairs and Services and Rs.259 billion for military pensions. For obvious reasons, the PTI government wouldn’t dare touch the defense budget which constitutes 44% of the net federal revenues. Debt servicing claims another Rs.2444 billion amounting to 80% of net federal revenues approximately. Defense and debt servicing, thus, together claim Rs.3803 billion which exceeds the net federal revenues by Rs.733 billion! The running of the civil government at the federal level, about whose high cost so much hue and cry was made by PTI, has been allocated Rs.460 billion in the mini-budget, more or less the same amount as was allocated by previous government, thus, belying PTI’s own past allegations of wasteful expenditure.

Instead of reducing current expenditure, the PTI government has lowered the development expenditure from Rs.1030 billion in the original budget for 2018-19 to Rs.725 billion through its mini-budget. The reduction would obviously slow down developmental activities in various sectors. That takes care of the PTI government’s promises of accelerating the growth rate of the economy, alleviating poverty and creating additional jobs.

The only practical way in which the PTI government could have made some progress towards overcoming the fiscal deficit and raising the quantum of its developmental activities was by taking bold new measures to increase its revenues. In fact, the revenue target was lowered by Rs.45 billion. Thus, the tax to GDP ratio would remain around 12%. Instead, the government should have taken steps to raise it immediately to 15%, which is the average figure for developing countries, and to 25% gradually in the next three to four years if it wanted to meet its current expenditure and developmental requirements without increasing the burden of public debt.

Pakistan can accelerate its GDP growth rate to 8-9% without running into unsustainable current account deficits only by increasing its national saving rate to 30% of GDP while taking specific measures at sectoral levels to increase our exports. This wouldn’t be possible unless we as a nation adopt strict austerity and self-reliance as our guiding principles. The government would have to provide leadership in this regard in partnership with the private sector. The dismal performance of the PTI government in presenting its first budget, however, does not hold promise of rapid progress in that direction. Hopefully, the PTI government, especially Finance Minister Asad Umar, would soon realize that it takes much more than raising slogans of ending corruption for cheap popularity and selling buffaloes to turn the economy around.

Corruption must be ended and those guilty of corruption must be punished in accordance with law. But even more important is to adopt the right type of policies for putting the economy on an even keel. PM Imran Khan’s press conference of 7 October at Lahore, in which he hinted at the government’s intention to approach friendly governments and IMF for loans, merely reflects the hollowness of PTI’s past claims of breaking the begging bowl, the lack of comprehension of the economic challenges confronting the nation, the incompetence of the PTI government in dealing with them, and its reliance on cheap slogans of ending corruption to hoodwink the nation. PM Imran Khan and his government should understand, and so should the nation, that there is no magic formula for overcoming our economic problems instantaneously. The path to Pakistan’s economic progress lies through proper comprehension of the economic problems confronting us, the right mix of policies to overcome them, and the adoption of austerity, self-reliance and hard work as our mottos.

 

The writer is an author, a retired ambassador and the president of the Lahore Council for World Affairs.

javid.husain@gmail.com