Spearhead Analysis – 17.06.2013
Just five days after being sworn in the PML(N) government has presented the annual budget for 2013-14. Obviously they had given the matter much thought before the elections as it is not a budget prepared in a hurry. It is a carefully thought out document that reflects the current economic situation, promises short term improvement and lays out projected statistics till 2016. The environment in which the budget has to operate is conditioned by heavy power load shedding, rampant terrorism, a serious breakdown in law and order with human security very seriously threatened by crime related violence, kidnapping for ransom and extortion, militancy, religious intolerance and sectarian violence, intolerance, extremism, radicalization, youth unemployment and poverty with almost 50% of the population food insecure. It is apparent that many of these facets are interconnected and feed off each other. Faced with these challenges the optimism in the budget will only sound convincing against the backdrop of sound implementable policies to confront and defeat the threats Even policies once formulated will only be accepted when actual implementation begins in real earnest.
Bilateral relations with the US, Iran, India and Afghanistan are important if there is to be peace and harmony with Pakistan a part of regional and extra regional developments. The relationship with the US is particularly important in the context of the evolving situation in Afghanistan and Pakistan’s reliance on the IMF, international Capital Markets, sale of 3G licenses and Coalition Support Fund payments. Right now the impending elections in India and Afghanistan make any meaningful change in bilateral relations difficult. The relationship with the US is dogged by Pakistan’s increasingly assertive position on the unilateral use of Drones by the US to attack Pakistan and the future of the Iran-Pakistan pipeline on which a clear policy has yet to be stated. The major dependence will be on China, privatization, Eurobonds and increased revenues from taxation both indirect and direct with the tilt towards direct taxation in the future. Inevitably there will be heavy dependence on domestic borrowing including bank borrowing to finance the fiscal deficit till external sources come on line if ever given the environment. The 23% increase in revenue receipts depends on very effective restructuring and stabilization of the FBR because of its past upheavals.
The optimism reflected in the budget forecasts a GDP growth rate of 4.4% from the present 3.6% and going up to 7% in 2015-16. Without a drastic improvement in the energy situation this is unlikely. Inflation currently at 7.6% is expected to remain in single digits –possibly 8% but this flies in the face of reduced subsidies, increased tariffs, raise in salaries and pensions and the increase in GST, withholding taxes and other measures that directly hit the lower income groups. The projected figures for an increased tax to GDP ratio, investment to GDP ratio and reduction of fiscal debt—all look too good to be true given the deteriorating internal security environment. Most welcome steps are the focus on infrastructure projects including health and education projects, the trend setting drastic cut in the PM’s office expenditure and the elimination of discretionary and secret funds coupled with the cut in government spending. No wonder then that the Karachi Stock Exchange is making record strides! The significant increase in development expenditure is another welcome step and hopefully the major part will go to the railways and the energy sector. If the losses from the Public Sector Enterprises can be eliminated then the optimism will start becoming understandable.
Finally the hope is that the budget will be followed by policies that are steps towards changing our internal environment so that we can meet the challenges that the external situation poses. Without internal stability and security we cannot grasp the opportunities that the regional and global situations will offer as major changes take place around us.
(Spearhead Analyses are collaborative efforts and not attributable to a single individual).