For a number of reasons, the next budget is likely to be qualitatively different from all its predecessors. To start with, for the first time in its history Pakistan will be preparing its budget in a visibly stable economic environment.
The balance of payments position has never been better with about $12 billion of reserves backing it.
The debt burden is easing up for the first time in decades with hopes high that by 2007 all the expensive loans amounting to about $7 billion would be cleared. The budgetary deficit has been brought down to 4 per cent from around over 6 per cent during the last decade.
Inflation seems to have responded to the tight leash on budgetary deficit and remained hovering around an acceptable 4 to 5 per cent against a constant double digit level for most of Pakistan's existence. Stock exchanges are booming as never before.
The cost of money has gone down steeply and cheap consumer credit boosting consumption and housing. expanded access to rich markets has helped boost exports to reach a historic record of over $12 billion.
And now comes the good news that the army on its own has decided to cut down defence expenditure, (the other major serious burden on the budget after debt) by slashing its numerical strength by 50,000.
The country specific international economic environment too has never been so favourable. Though, the official donors and the multilateral aid agencies have been highly supportive of Pakistan ever since 9/11, but they have never been so appreciative of the pace of implementation of reforms and their direction in this country and therefore, so ready with their assistance to help us in expanding our socio-economic capacities.
It is almost a perfect setting for launching the second generation of reforms. So, the new budget is likely to contain measures to create the enabling environment for a sustained pursuit of these reforms.
While the budget makers would certainly have a larger fiscal room to prepare the next year's balance sheet, it now appears almost certain that the Centre would have to concede a larger share of resources than in the past to the provinces from the divisible pool this time and it is also almost certain that the provinces will be constituting their own provincial finance commissions on the lines of National Finance Commission.
So, from the next year, financial ad hocism will come to an end in the local governments and proper budgeting for the year will be undertaken by them. The next budget is also likely to be a budget of transition because half way through the next fiscal year, the process of transition from the military to civilian, started with the 2002 general elections, will be completed.
And in the next half of the fiscal year the management of the economy would be totally in civilian hands, but with the president still calling the shots and overseeing continuity in economic policy.
So, the budget makers will have to design their balance sheet in a manner so as to make it politically suitable and acceptable to a new system of governance.
And if what the finance minister is saying is what he means about having nothing to do with the IMF after the conclusion of the current three-year poverty alleviation programme (PRGF) in December 2004, then in the second half of the next fiscal, there would be nobody looking over the shoulders of our economic managers to see if what has been prescribed by the IMF board was being implemented in letter and spirit.
This would be perhaps a new experience for a country which has been continuously on the IMF dole since 1988 when the then finance minister, the late Dr. Mehbubul Haq had to rush to the Fund in Washington for a paltry loan of about $800 million and in return promised to implement a politically loaded economic reform prescription which no elected government could implement in its entirety. So, the succeeding and successive governments of Benazir Bhutto and Nawaz Sharif could hardly get past the first tranche.
So, we came to be known as a one tranche country all through these years. But this practice of stopping the Fund reform after using the first tranche was not started by an elected government, but a military one.
This happened in 1982-83 when the then finance minister Ghulam Ishaq Khan after having received the first tranche of $500 million of a three-year $1.02 billion assistance from the IMF, did not go back to the Fund for more because he found it politically difficult to implement the next phase of reforms which mostly impinged on the incomes of the rich.
And as luck would have it, by that time the Americans had come with their billions to help the tottering economy of what by then had become a front-line state engaged in the last war against the Soviet communism.
In the subsequent years when the Soviet war- related billions were pouring in and creating a massive room and the needed cushion for the next phases of reforms to be implemented with ease and least disruption to the economy, the then military government kept wasting the resources on non-development activities like arming the country to its teeth with military junk and siphoning off the residual resources to line personal pockets while totally neglecting social and economic infrastructure which was depleting fast.
One sees a lot of similarities between the economic environment obtaining today when our official economic managers have begun talking of ending all programme assistance arrangements with the IMF and the one existing at the time when in 1982-83 the then finance minister had stopped all such programmes unilaterally.
We are today at a stage where the launching of second stage reforms has become highly imperative as it was in 1983-84 to introduce the second phase of reforms.
A massive fiscal room has emerged today, thanks largely to the December 2001 debt rescheduling arranged by the IMF besides the generous assistance now pouring in from all rich corners of the world (thanks largely to 9/11) like it did during the Soviet occupation of Afghanistan.
We were under martial law in those days. Today, the effective power is with the military while a parliament without any power is also in existence along with the associated paraphernalia of a chief executive and his cabinet.
In those days, the civil servants were the official economic managers today, the team is still mostly from the civil service, but it is being led by a former American banker of Pakistani origin.
In those days, like today, the rich had a vested interest in continuity because the government of the day provided protection against an economic restructuring that would loosen the grip of the rich over the wealth of the nation. That the IMF serves the global political interests of the rich world has never been in doubt.
This had led many to believe that most of its economic reform prescriptions for third world countries are specially designed to promote these global interests of the rich in developing countries.
But then there is a rich world within each of the developing countries as well. It is made up of that country's ruling elite which includes, the big business, landed aristocracy and civil and military bureaucracy. This class willingly serves and promotes the interests of the multilateral aid agencies in the respective countries for a price.
And this price enables this class to perpetuate its political and economic hegemony within the domestic domain without let or hindrance from outside. It is only when a point is reached where the interests of the ruling elite in a developing country appear about to be undermined by the Fund's reform prescription that the former starts looking around for excuses to end the relationship.
This happened in 1982-83 when the Fund's second phase of reforms were perceived by the then ruling elite as threat to its domestic hegemony. Even today when the present official economic managers are announcing to the nation the glad tidings that from the next year Pakistan would cut its programme links with the Fund, the motive behind is perhaps to help the ruling elite to escape from a threat to its hegemony rather than to help the country escape from being manipulated to serve the interests of the global elite. We have experienced four models of economic development in our 57 years of existence.
The first was the Ayub model which created vast disparities between regions and classes. We saw capitalism at its worst in those days. Next was the Bhutto model which was built on the theory of socialism but in practice it turned out to be a model for bureaucratization of the nation.
Then came the Zia model which was a repeat of the Ayub model, but with corruption becoming the most dominating factor in the life of a typical Pakistani citizen. And finally came the Benazir/Nawaz model which mirrored the consequent economic chaos that the last three models had generated in the country. We also know what the Fund and its colleagues did to Latin America.
We also saw how a modified Marshall plan helped a post-war Japan to become an economic giant within a life time and how Japan helped its neighbours with similar plans subsequently. And there is the Chinese model which one feels cannot be replicated by any other nation on this earth. And finally there is the Indian model.
The choice, therefore, is open for the official economic managers. They can take lessons from our past mistakes and learn from the experiences of others and come up with a new model for our economic emancipation with the launching of the next year's budget when we will not be bound by the IMF conditionalities to follow some set and highly restrictive rules of the game.
This model should be able to provide equal opportunities to all Pakistanis irrespective of their class background or gender. At the same time, it should make Pakistan attractive enough for foreign investors.
The model should start a genuine restructuring of the economy jettisoning all the sunset industries like, sugar cement and such others. Promote knowledge-based economic activity with the national universities becoming the hub for such activity.
We should not only plan and speak about plans to educate the nation but should start doing something about it earnestly and sincerely. That is the only way we could become sovereign in the true sense of the meaning of the term.
We should use the available fiscal room to enhance our food security by making budgets agriculture-oriented rather than engineering industry oriented. And finally, we must use the future budgets to turn our economy into a genuine trans-shipment (warehouse) economy rather than wasting our time and resources on basic manufacturing for which we do not have the wherewithal and neither the comparative advantage.
We must make the best economic use of our geographical location and our agricultural strengths rather than trying to draw water from stones.
