Saturday, June 6, 2015

Daily Times Editorial June 7, 2015

Budget 2015-16 No one could possibly accuse the PML-N government of being anything but business-friendly. This perception arises both from the social origins of its leadership as well as their worldview and also reflects their track record in office in the past. It is therefore no surprise that the government’s budget this year (as in the last two years) reflects its priority to offer concessions to the rich, industrialists and traders, i.e. its ideological and actual constituency while throwing little if any sops to the poor and marginalised sections of society. Finance Minister Ishaq Dar tried hard in his budget presentation to make the argument that his government saved the country from default in the first year, stabilised the economy in the second, and was now poised to move towards growth in the third. There was however no dearth of sceptics and critics of these claims, both inside parliament as well as amongst the economic analysts community. The critics’ consensus is that the Finance Minister has been presenting in his previous two as well as this third budget a far rosier picture than can be justified by reference to the facts, numbers and ground realities. The Economic Survey shows growth is sputtering, with skewed policy priorities that disadvantage the real economy. Industry and agriculture are struggling, with the flight of capital and low investment in the country’s economy reflecting continuing lack of business confidence. Admittedly the inherited negativities of the security situation and the electricity deficit impinge on this outcome, but three years down the road, the government has yet to convincingly demonstrate that it is getting on top of these roadblocks. The budget outlay this year is Rs 4,451 billion, to be met from resources of Rs 4,168 billion. Current expenditure is estimated at Rs 3,482 billion, which significantly includes an 11 percent rise for defence to Rs 780 billion and debt servicing of Rs 1.3 trillion. In contrast, development is allocated Rs 969 billion, of which Rs 700 billion is the federal development expenditure and the rest goes to the provinces, a division of the development budget that could yet again give rise to frictions between the Centre and the provinces. The China Pakistan Economic Corridor gets Rs 151 billion, but this can only be regarded as initial seed money for the huge infrastructural projects anticipated under this head. Borrowing from banks is estimated at Rs 282.94 billion, an area that has become more and more controversial since the lowest interest rates in 42 years are helping the government to rely on this source in the absence of the meaningful reforms of the direct taxation system agreed with the IMF. This government-banks nexus is reflected on the other side of the coin by the fact that the banks prefer to invest largely in zero risk government paper, thereby crowding out private sector borrowing. That decreased borrowing that fell significantly from Rs 335 billion to Rs 201 billion is reflected in private sector investment decreasing from 10 percent of GDP to 9.7 percent out of a total investment of 15.1 percent, up marginally from 15.0 percent the previous year. In the main sectors of the real economy, borrowing by manufacturing and agriculture fell from Rs 208 billion to Rs 88 billion, and from Rs 21 billion to Rs 14 billion respectively. It is not surprising then that large scale manufacturing investment declined from an already low 1.5 percent of GDP to 1.2 percent. Public sector investment did go up from 3.4 percent of GDP to 3.9 percent, but most analysts are inclined to ascribe this to the Rs one trillion the government borrowed from the banks and spent on showcase infrastructure projects while ignoring the real and pressing needs of the people in the social sector. This track record hardly justifies the appellation “inclusive growth” that the finance minister tried to spin. Whatever schemes for the poor may be on the cards (or at least on paper), it is clear that the government not unsurprisingly remains wedded to the free market paradigm, implying a reliance on the discredited ‘trickle down’ theory to bring relief to the masses. The soaring rhetoric of the finance minister has failed to convince in this regard despite the raising of the minimum wage by Rs 1,000. The targets set by this year’s budget follow the prescriptions of the past budgets in pitching unrealistic targets for growth of 5.1 percent when last year’s targets all fell short and growth came in at 4.24 percent, marginally above the previous year’s 4.0 percent. Realism would have been in order after that denouement, rather than relying on hope over reality. The budget expects foreign exchange reserves to rise to $ 19 billion by this fiscal year’s end and investment to grow three percent of GDP to 16.5 percent. How this is to be accomplished is the glaring omission in the budget. Public sector development, especially the China Pakistan Economic Corridor seem to be the main hope of the government for achieving this year’s growth target, which still leaves the question of the private sector’s contribution unresolved. Perhaps these factors may make the targets this year viable, but unless industry and agriculture are pulled out of the stagnation they are stuck in, such growth will be temporary, not inclusive, and unsustainable over the medium and long run. On tax reform, the government seems to continue to rely on new or enhanced indirect taxes, to the detriment of the ordinary citizen and reflecting the failure to implement the direct tax reforms that need to target the rich. Rising borrowing, sluggish revenues and misplaced sectoral priorities constitute a poor foundation for the inclusive sustainable growth the budget touts. Inflation did fall from 12 percent to 4.6 percent last year, but how much of this is due to policy and how much to the windfall decrease in international oil prices is open to question. The fiscal deficit too was brought down from a high of 8.8 percent to 5.0 percent, but whether this year’s target of 4.3 percent can be adhered to remains to be seen. The neo-liberal free market paradigm offers little if any hope for relief and betterment for the masses. Poverty, unemployment and inflationary pressures on their breadbasket seem to be their divinely ordained fate. In the absence of a people’s movement to raise these concerns and demands, successive governments in recent years have been able to get away with ignoring the poor. How long this ‘honeymoon’ will last is difficult to say, but the increasing resort to legitimate protest by many sectors of society, including but not confined to poor farmers and workers and encompassing even slightly better off segments like doctors, nurses, etc, are indicators of the shape of things to come. In each such manifestation, our rulers have little to offer except vague promises and homilies about addressing the woes of the people. The invisible finger of accountability of our complacent rulers and the rich may be hovering over the wall to inscribe new words that could portend great social and political upheavals. Better for the ruling elite to take heed and steps to head off the storm before it arrives rather than continuing to live in the illusion that such deprivation and inequality can persist peacefully forever.

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