June 12, 2008	Thursday	Jamadi-us-Sani 07, 1429

KARACHI, June 11: The first budget of the politically stressed coalition government presented in the National Assembly aims to achieve the difficult targets of fiscal stabilisation by reducing budget deficit to the level of 4.5 per cent and achieving the growth of 5.5 per cent during FY08-09. The pro-poor measures announced might not be substantial but made the finance minister’s speech sound people-friendly and, therefore, ‘politically correct’.

The budget attempts to provide some relief to the vulnerable groups through targeted subsidies such as a cash grant of Rs1,000 per month per family of the poorest of the poor, to be identified by using the Nadra database. The earlier announcement of Prime Minister Yousuf Raza Gilani to increase the minimum wages to Rs6,000 has been included in the proposal. Some respite has been announced for the salaried classes by revising the slabs for income tax to make the taxation system ‘progressive’ in nature. The pay package of government employees has been increased by 20 per cent and conveyance allowance doubled in a year of fiscal adjustment when inflation rate is expected to rise further.

The de facto finance minister, Naveed Qamar, acknowledged the economic challenges the country is facing and avoided raising false hopes of an economic turnaround in a year. As expected, he blamed the preceding regime for neglecting the key economic areas of infrastructure, agriculture and manufacturing.

He also blasted the Shaukat Aziz government for irresponsible economic management by resorting to short cuts, as raising money by borrowing from the State Bank to finance the excessive government expenditure; hiking the deficit to a record level that he said primarily pushed the rate of inflation and put pressure on the value of the rupee, exposing the weak foundations of growth during the last regime.

To bring the current account deficit within permissible limits, the minister has proposed to improve domestic resource generation and cut on the non-development government expenditure. On resource generation side, the budget envisages improving resource mobilisation by making tax collection more effective and efficient, removing tax exemptions and roping in real estate developers in the tax net. A scheme at a two per cent flat tax has also been introduced to bring black money into the mainstream economy.

To contain non-development expenditure, salary expenditure has been proposed to be frozen last year’s level.

A positive gesture towards more transparent public money management has been made by inducting the details of defence budget in the proposal to be discussed in the National Assembly.

There are indications in the budget that Mr Qamar Naveed termed “part of the perspective economic plan of the government” of the shift of emphasis to the commodity producing sectors of agriculture and manufacturing as opposed to services that was encouraged and proved to be the driver of growth during the last government.

He claimed to have attempted for a structural shift in the economic policy through budget proposals that would lead the economy towards providing more sustainable foundation to growth by reinvigorating agriculture and manufacturing. Another theme that was repeated in the budget was the fresh focus on public-private partnership to address the demands of infrastructure deficit.

The minister said that the coalition government considered the private sector to be the driving force for economic development but because of shyness of private investors in investing in gigantic long-term projects, the government was willing to permit public participation in certain projects on the promise of divestment as soon as possible once it got off the ground.

His plan for agricultural revival includes increasing the total acreage under cultivation, besides timely easy availability of quality inputs at reasonable rates. He mentioned allowing import of bulldozers to achieve this target. But for most people listening to the budget speech, a relationship between importing bulldozers and increasing total acreage did not make sense.

The land under cultivation could be expanded by distributing state land among landless farmers if the government does not want land reforms. The minister evaded the issue of land holding structure in rural Pakistan that has been identified by economists and a report of the agricultural reform commission as the major hurdle in increasing agricultural productivity.

The minister proposed programmes to incentivise the farming community to improve productivity and yields and water efficiency would be introduced.

He indicated the government’s intention to involve foreign investors in the agriculture sector by offering vast tracts of land for corporate farming. Scores of other measures to ease water shortages and bottlenecks in credit, seed and fertiliser availability have also been announced.

The minister specified measures to revise the tariff structure to encourage local industry. Incentives have been announced for pharmaceuticals, textiles and some other industries.

All in all, the budget speech was populistic as was expected. The finance minister made every effort to make ‘politically correct statements’. However, until the entire budget documents are available, it would be premature to offer a final verdict on the thrust and possible implications of the budget on the economy and the wellbeing of the public.