June 3, 2002	Monday	Rabi-ul-Awwal 21,1423

But we are talking about war. Not that the exercise of making the budget has in any way been delayed. Not at all. This is going on apace.

But the ministries, the divisions, the departments engaged in drafting their budgetary demands seem to be operating in a totally unreal world. What kind of demands do they make? Those that would take care of the peace time needs or those that fulfil war time demands? Or do they draft demands for both the eventualities and let the finance ministry pick up the most suited for the country on the day of the announcement of the budget?

But how is the CBR going to perform in times of uncertainties, especially those associated with war like situation and terrorism. Even in times of total peace it has been falling short by Rs. 50 billion of their own projected budgetary revenue targets on an average. In fact the country’s development related spending declined during the current year mainly due to the shortfall faced by the CBR and growing defence expenditures incurred during the current fiscal year in view of the border tensions. The International Monetary Fund(IMF) has already expressed its fear that if the military standoff between Pakistan and India continued it would make it difficult for Islamabad to achieve the desired macro-economic targets for reviving the national economy. In the situation obtaining currently both on the revenue side as well as on the borders the budget making exercise for the next year seems to be a highly trying task.

Pakistan has so far succeeded in containing the defence budget but if tension persists on eastern borders then it may not be possible for Islamabad to keep a leash on defence spending. If Pakistan decided to hike its defence spending, then it would have to increase its revenue or cut down other expenditures to achieve the IMF’s budgetary deficit target of 4 per cent of the GDP for the next year.

Not only this. If things deteriorate on the LoC then it would send a very negative signal to investors who are already shying away from Pakistan due to increased terrorist activities inside the country. Meanwhile, despite everything the IMF would very much like the next budget of Pakistan to be consistent with the framework of the PRGF and its targets for the fiscal 2002-03 because under the agreement the fourth tranche of $100 million earmarked for release during the next fiscal year would only be released if Pakistan kept to the PRGF conditionalities and succeeded in achieving the targets laid down in the framework.

In view of this the budget makers would perhaps be tempted to present a budget consistent with the PRGF framework and hope that as and when war related modifications would be needed to be done in the course of the year the IMF could be requested for relevant waivers. Indeed, in view of the understanding shown by the Fund on the issue of border tensions, the government seems certain that if the matter came to a head it would be able to obtain the needed waiver from the IMF. The waivers would mean further curtailment of development budget as there is no hope of either any dramatic increase in the revenue collection because of the continued sluggish economic activity in the country nor would the IMF agree to concede a waiver on budgetary deficit as in the Fund’s Bible you can achieve macro economic stability only if you succeeded in bringing under control the budgetary deficit no matter how adversely the meeting of that one single condition would affect the overall economy.

So, while the decline in development expenditure would make a mockery of the PRGF’s aim of reducing poverty, the next year’s budget would still fail to achieve the budgetary target of 4 per cent of the GDP because the continuing stagnation in the economy is hardly likely to generate enough resources to fill the gaps that would emerge at the end of the fiscal year between income and expenditure.

The new budget despite the pressures from the war-like situation and serious declines in investments, exports, imports and revenues would certainly attempt to tackle the debt problem as well. The overall debt situation still appears to be precarious notwithstanding the ‘generous’ concessions and grants offered by the bilateral donors and the rescheduling obtained from the Paris Club. In fact the World Bank has termed Pakistan in its latest report as severely indebted country as its external debt exceeded 220 per cent of its exports goods. The World Bank classifies a country as severely indebted when the present value of its external debt exceeds 220 per cent of its export of goods and services ( including workers remittances).

And of course, there is another very vital issue that the next budget will be tackling, war or no war. And that is the financial fancies of the National Reconstruction Bureau (NRB) like the establishment of the provincial finance commissions. And many of the functions now being performed by the federal budget would go to the provinces and from the provinces to the local governments. So, budget making for the next year is going to be whole new ball game. And while the nation is confronting its mortal enemy on its borders, the NRB would be tinkering with the very document that had kept it going as a nation since it was passed through consensus by an elected parliament in 1973.