If you thought populism would trump fiscal prudence in an election year, Ishaq Dar has proved you wrong. Two themes dominate the new budget: stability and growth (at the macroeconomic level), and some relief and small sops for everyone — well, almost everyone — (at the political level) without burdening the government’s expenditure.

Most of the relief measures he announced for farmers and exporters in his potentially last budget speech before the 2018 elections have already been absorbed in his expenditure last year. And that afforded him the rare opportunity to undertake a hefty raise in the allocations for large infrastructure projects around and outside the China-Pakistan Economic Corridor (CPEC) initiative and offer sops like reduction in withholding tax on registration of cars to urban middle class, pay and pension raise for tens of hundreds of government employees, a credit guarantee for the small and medium businesses, tax relief to agro industries, and so on.

“It is not a populist budget that goes the extra mile to sway voters for the ruling party because the government wants to maintain economic stability it has achieved over the last four years,” notes Ali Asghar Poonawala, a financial analyst.

A cursory reading of budget documents shows that an attempt is being made to balance growth and populism

“This is the kind of budget that you expect from a government that stands on its credentials of four-year run and is looking confident about its prospects in the (next) election.”

A reading of the budget documents shows that the Nawaz Sharif government is trying to balance growth and populism. It looks to continue on the path of further consolidation of the economic gains of the last four years by increasing the levies on high growth sectors like steel and cement, withdrawing tax incentives for builders, continuing collection of controversial super tax from large corporations, adding more burden on non-filers, and taxing capital gains and dividends on listed firms.

“Dar knows he is walking on a tight fiscal rope. Hence, he has not gone all-out for popular budgeting. Rather, he chose to focus more on cash collection and left the job of offering goodies and freebies to influence the voters for the provincial governments (read Shahbaz Sharif government in Punjab),” argues the head of treasury at a foreign bank.

Nevertheless, the minister did not overlook the importance of allocating significant funds for bringing gas, drinking water and electricity for his party men, especially from its political base, Punjab, to go into the next election with something to show off to their voters. More than that, he has chosen to restrict the role of the federal government to increasing development investment for completing road and energy projects around and outside the CPEC initiative before the elections.

Indeed, Dar, who had inherited what he termed in his first budget speech in 2013 a ‘broken economy’, will hopefully leave the country’s economy in a much better shape when the government tenure ends a year from now. But the fact will remain that he could not resolve, on a sustainable basis, two major challenges — broadening the tax net and improving the current account deficit.

His policy of maintaining the exchange rate and collecting foreign debt to increase foreign exchange reserves while the manufacturing sector groaned under the pressure of falling exports means that the current account has resumed bleeding under rising trade deficit. On the tax side, he chose the easier path of spiking indirect levies and share of withholding tax.

Published in Dawn, May 27th, 2017