BRAVING the challenges of falling tax revenues, reduced development spending, rising fiscal deficit and swelling debts, the prime minister’s advisor on finance Dr Abdul Hafeez Shaikh expects the government to focus on mitigating sufferings of the people in the 2020-21 budget.

Deviating from the prioritised austerity agenda, Dr Sheikh in a recent television interview said: it is the basic principle of economics that when money comes in the hands of the people through government spending, it helps generate economic activities, job creation and in tackling the recession. So in the next budget, he elaborated, the government will mitigate sufferings of the people and give cash, food products and recreate employment opportunities.

In a bid to make that happen, Islamabad has secured the financial support of some $3.3 billion from multinational agencies for fighting coronavirus and its impacts on the economy. More fiscal space will be available from the one-year breather on debt repayments to G-20 states estimated at $1.9bn.

Similarly, the debt-servicing cost is likely to be reduced both by an anticipated further decline in the policy rate, with exchange-rate volatility remaining subdued because of cheaper imports of oil, as well as falling domestic demand further hit by recessionary headwinds.

Of the authorised federal development spending of Rs526bn — out of the annual Public Sector Development Programme of Rs710bn — nearly half of the amount remains unutilised

Owing to a rising slack in economic activities, banking spread in March has already dropped by 49bps year-on-year and 18bps on a month-on-month basis. Notwithstanding these positive developments, according to the International Monetary Fund (IMF), the debt-GDP ratio will go up to 90 per cent by the end of June.

While trying his best to enhance tax revenues reasonably, Dr Sheikh clarified that documentation of the economy will not be so strict that it will hurt businesses. Observing that the real players are businesses, investors, exporters, workers and farmers, he hoped to come up with a budget that meets the expectations of the people.

However, if one looks at the speeches made on International Labour Day on May 1 and recent events organised by social activists, it appears that the government and civil society are not on the same page. The participants of the May Day forum were of the view that the government is using tax money to bail out big businesses and offering peanuts to the deserving poor.

Despite getting a huge stimulus and relief package from the government, industrialists have so far retrenched more than 6 million workers, and according to one estimate, and the number might reach 12m, lamented Karamat Ali, Executive Director of Pakistan Institute of Labour Education and Research. Women’s Democratic Front representatives called for, among other things, free universal healthcare, as a right, while demanding gender and economic justice.

Despite getting a huge stimulus and relief package from the government, industrialists have so far retrenched more than six million workers

All these demands have to be seen in the context of the government’s capacity to deliver on its ambitious uplift programme. To quote the latest official data, of the authorised federal development spending of Rs526bn – out of the annual Public Sector Development Programme of Rs710bn – nearly half of the amount remains unutilised.

Aware of its limitations, the government needs to encourage local communities to undertake micro socio-economic development projects on an unprecedented scale across the country while extending technical help with small financial assistance.

In his book titled A Journey Through Grassroots Development, Shoaib Sultan Khan devoted an entire chapter on the Daudzai Project launched in 1972 to demonstrate the most cost-effective way to execute a project with multiple benefits. Such a project, he wrote, was made possible by organising people around a solution of a problem which they thought to be their own principal priority. The experience of the project can offer a way in which people can be empowered to improve the quality of life by themselves with the government serving as a catalyst.

Speaking on Labour Day, social activist Hina Jilani said had there been strong local governments equipped with resources, there would have been a visible difference in the handling of the corona-sparked crisis.

The PTI election manifesto had pledged to devolve power and decision-making to the people through an empowered local government. Nothing of the kind has happened. Instead, Prime Minister Imran Khan has now decided to transfer Rs30bn from the Sustainable Development Goals (SDG) programme from the cabinet division to the parliamentary affairs division. This will enable effective participation of parliamentarians in the disbursement of funds for small and, currently community-driven, development schemes.

According to the IMF, Pakistan needs Rs6.2tr to be spent in 10 years to honour its commitment to the United Nations SDGs monitoring body. Owing to enormous sums of money required, it was stipulated in the UN mandate that the government, business and society would join hands to implement the ambitious SDGs programme.

The government says it is doing its best, given the limitations of its resources and administrative capacity. The macroeconomic indicators can only be improved by the sustained expansion of the economy propelled primarily by domestic demand that is, in turn, fueled by the needs of the common citizens enjoying a good standard of living. That is the key challenge the next budget needs to address.

Published in Dawn, The Business and Finance Weekly, May 11th , 2020