KARACHI, Oct 16: Former State Bank governor V.A. Jaffery said here on Thursday that scholars in their analysis and research work failed to recognize political factors that play an important role in shaping economic development.

Speaking at the third technical session of the two-day conference on “budgets and sustainable development” organized by SZABIST, he observed: “Political factors are more important in determining the course of economic development than economic policy decisions and programmes.” He quoted the example of the nuclear blast carried out in May 1998 whose consequences are being felt to this day.

He was happy that the papers presented at the conference were free from the influence of vested interest because academicians did not represent any lobby.

Mr Jaffery did not agree with the assertion of some speakers that there was no vision or input of knowledge in economic planning. He said: “It is the vested interest which influences the budget. It is those wielding political and economic power who make policies and they are the people who decide.”

Those who addressed the conference included Dr Kaiser Bengali, managing director, SPDC; Nazar Memon, social planner; and Dr Asad Saeed, consultant, Collective for Social Science Research, Karachi.

Mr Nazar said sustainable development was linked to sustainable democracy and added: “You have to rope development around people and not people around development. It has to be a people-centred development.”

Relating his personal experience as a UNICEF official, Mr Nazar recalled that Nelson Mandela, former South African president, earmarked 60 per cent of the education budget on teachers training and 35 per cent on brick and mortar. He stressed that “you have to invest in the people.”

While lauding the experiment of the district government, Mr Nazar said “over-centralization has constrained development” and pointed out that “provincial autonomy concept has yet to materialize” which he described as “the missing link” — the decentralization from the centre to the provinces.

In his presentation, Dr Kiaser Bengali said that there was no development philosophy or vision that could broaden the economic base and reduce poverty. While appreciating improvement in macro-economic indicators, the eminent economist pointed out to the vulnerability of the economy because of narrow base of manufacturing, exports and remittances.

He said manufacturing growth was accounted for by increase of six items, exports are heavily dependent on three items — textiles, rice and leather. Soaring remittances are explained by temporary phenomenon of reversal flight of capital. He said the last year’s official growth rate of 5.1 per cent was inflated and added that serious efforts were needed to diversify the economy to achieve sustainable development.

While supporting macro-economic stabilization, Dr Kaiser Bengali pointed out that the way these targets are achieved have different distributional implications. A wide range of options can be exercised to achieve given ends, some of which are pro-poor and others are not.

He spelt out the impact of different options that help or hurt the poor. The budget deficit can be lowered by raising revenues or cutting spending. Revenues can be raised through direct taxation or indirect taxes; the former impacts the rich and the latter largely impacts the poor. Current expenditure, likely to be consumptive, can be reduced or development expenditure that is likely to create new assets and a future stream of income, can be cut.

With the help of official statistics, Dr Kaiser showed that indirect taxes were being enhanced, non-development expenditure was increasing and development spending was declining when figures were compared for the last 15-20 years. Spending on the social sector is also fallen over the years.

Young Dr Asad Saeed gave a presentation on “rationalization of defence budget” with reference to good governance, transparency and accountability.

He said transparency had improved since the Nawaz Sharif government presented an agreement with the IMF to the parliament for debate, although no prior approval was sought from the National Assembly. The budget documents show government revenues and expenditures from which even the kitchen expenses of the Prime Minister House can be reduced. This has not happened in case of defence budget.

Yet two changes have taken place: defence production budget is shown separately and pension of defence personal has been transferred to the account of civil administration in the year 2000-01. Of the total pension allocation of some Rs33 billion, Rs27 billion is for defence personal and Rs5.3 for retired civilian officials. The pension rates are the same. There is a lot of middle career retirement for military officials and the profile of pension is much longer for them. This requires good human resource planning, Dr Asad told the conference participants.

Dr Asad Sayeed said that defence accounted for a quarter of the federal budget and for one-third of the revenue, yet there was no transparency or accountability. Though defence spending has come down from 6 to 4-4.5 per cent of the GDP, the reduction in military spending has been slower than civil government expenditure. In the past 20 years, the defence budget had doubled while the development expenditure has dropped from eight per cent to 3-3.25 of the GDP.

He said the defence budgets in developed countries were presented before their parliaments and sensitive portions were referred to special parliamentary committees. India has put its defence budget on its website.

Defence of territorial integrity is an issue that concerns as much the common citizen as its concerns the government and the defence budget needs to be debated in civic society and the parliament to evolve the best policy, Dr Asad concluded.