The budgetary exercise in Pakistan does not draw the kind of excitement anymore as it used to back in the 80s and 90s and there are many reasons for it. For starters, rarely have we seen projected budgeted targets being met in the past. This creates public sentiment that as the government falters, mini-budgets will follow during the course of the year. People have too often seen the display of lofty figures every June, which in the end do little to touch their lives positively. The prevailing skepticism that has come to be associated with economic governance in Pakistan is that it is more about taking than giving due to management inefficiency, corruption and ostentation. There is no improvement for the struggling common man, creating an environment that is reminiscent of days preceding the French revolution.

Having said this, one must admit that the record high Rs 3.936 trillion budget for 2014-15, unleashed with a lot of fanfare, actually turned out to be much better than expected. Contrary to its pre-budget postures, it seems that the PML-N leadership finally did manage to get its direction right by focusing on the right areas in their allocations. However, whether or not the allocations are based on sound economic rationale is altogether a different matter and open to debate.

In general the message by the government has been that it wants to stick to fiscal consolidation while finding innovative ways to spur growth. An ambitious growth target has been set by announcing incentives to industry cum investment per se, exports and agriculture. Also, it plans to shore up revenues through a host of measures pertaining to taxs. These taxes will be increased on luxury-consumption, capital gains both on assets and debt instruments, and transactions that largely otherwise remain outside the tax net. Energy that is invariably the main engine of growth gets the lion share of Rs 205 billion, including funding for Neelum-Jhelum and Diamer-Bhasha. Water sector investment crucial for driving agriculture has been allocated an impressive Rs 42 billion. Provinces have been asked to play an increased role in raising the national tax to GDP ratio, again a step in the right direction. Also, one thought it was very brave of the government to admit that poverty is a serious problem in Pakistan where nearly 50 per cent of the population lives below the poverty line (a threshold of $2 per day) and that something quickly needs to be done about this. The BISP (Benazir Income Support Fund) has been increased to Rs 118 billion from Rs 75 billion last year.

The problem however is that while the budget announcements in principal look fine, it is in the detail where the concerns lie. If indeed over the next four years Pakistan has to set forth on a path of employment generation and achieve a growth rate of 7% - which in addition is also equitable – then this government will need to revisit its vision of economic management. Increase in the BISP is a good step but dividing the direct cash-grant benefit over the population base barely amounts to around Rs 750 per year or Rs 62 per month per family of six. This by any stretch of imagination is not going to be enough to drag people out of the poverty trap. Measures that improve national competitiveness, allow entrepreneurial juices to flow freely and generate economic activity creating employment, are much needed to eradicate poverty. With energy prices and wages rising in this budget, national competitiveness will take a hit. It is an urgent requirement that structural reforms be taken. These reforms basically refer to opening up the economy in a way that ensures free competition, discourages rent seeking, monitors anti-trust violations and encourages entrepreneurship.

Since it is China to whom the present leadership is looking for economic inspiration, it should not be very difficult for them to decipher that China’s miracle of poverty reduction has neither been based on excessive borrowings nor on shoring reserves based on shaky ground. The Chinese instead focused on establishing industrial discipline and a manufacturing base that helped them compete both through low costs and economies of scale. A careful meld of professional management with the might of the state spurred domestic investment resulting in trade surpluses. We on the other hand seem to be hell bent on not only destroying our state enterprises but also on disinvesting from even those portfolios that provide perfect models of state’s partnership with private-sector professionalism. Institutions like UBL, HBL, etc., apart from being ideal investment portfolios, also serve as incubators for professional management training for the government’s human resource arsenal. The move in this budget to scale down state owned enterprises instead of helping them become competitive can only turn out to be counterproductive in the long run.

Finally, government continues to misallocate priorities. There is no denying that Foreign Direct Investment (FDI) should be encouraged, but it should not take precedence over domestic investment. Though the current influx of Chinese investment appears to be a welcome sign, the overall phenomenon needs to be evaluated. Unless countries carefully evaluate, negotiate and monitor large scale incoming investments the results can sometimes turn out to be quite different than originally intended, especially where such investments tend to add to national debt and sovereign liabilities through guarantees on pre-set returns on investment. Further, unless an investment carries an extraordinarily extended multiplier effect, agreeing to higher than market ROI (return on investment) on a foreign investment is tantamount to shooting oneself in the foot. Not only do they become a drain by taking out more than what they initially brought in, in essence the recipient country helps them expedite foreign exchange repatriation by allowing them an additional share of profit that instead rightfully belonged to the home markets. If there was ever a lesson to be learnt from the on-going crisis in the eurozone economies of Spain, Portugal and Greece, it is that large capital investments/inflows should not be allowed in without first screening them prudently.

 The writer is an entrepreneur and economic analyst.

kamal.monnoo@gmail.com