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Liberal spending and fiscal prudence

June 17, 2012

THE ‘populist budgets’ have come under severe criticism in view of the widening federal fiscal deficit and with two major provinces moving apparently in the same direction, for want of significant increase in provincial tax revenue.

The total development outlay of the four provinces at Rs614 billion exceeds by Rs101 billion the development programme of Rs513 billion approved by the National Economic Council, dashing hopes of the federal government that the federating units together, would manage a Rs80 billion surplus to help it to lower the consolidated fiscal deficit.

The provinces seem determined to exercise their new found fiscal autonomy for stepping up economic development. Seeing the outcome of elections in Greece and France, they have opted for economic growth. Some of the steps like subsidy on interest rates or tractors would help boost production and spur businesses. If the budgeted amount for development, coupled with billions to be spent by candidates of National and Provincial assemblies is fully utilised, it would serve as a stimulus for economy to grow faster. A higher rate of economic growth will help the macro-economic indicators.

In principle, the populist approach cannot be questioned given the government’s role of “enabler and facilitator’ of the private sector and its utter failure to manage an ‘inclusive economic growth’ that could produce jobs and reduce poverty. In an economy stated to be in ‘distress’ and low levels of investment, taxing trade and industry does not make much sense. And probably the best time to effectively tax farm incomes would be immediately after the next elections.

And temporary relief has to be provided to the poorest of the poor till such time a high economic growth with low inflation is achieved to avoid rising social costs.

Nor can the ‘populist approach’——for example the MNA’s and MPA’s- supported projects—can be criticised. After all, public representatives are elected with a mandate to work for the uplift of their constituencies. They need to honour their pledge made to their voters as they are ultimately accountable to the electorate. This is the essence of representative democracy.

Balochistan has allocated more than 50 per cent of its development budget for MPAs’ projects/schemes for the next year. Its population is thinly spread over a vast territory and its development strategy has to be province- specific. Balochistan may or may not follow the pattern of development spending set by other provinces or the federation. It may, however, be conceded that the MPA-supported projects have got more than a fair share in an election year.

The real problem is to ensure that projects are designed for common good and not for the benefit of the few and will deliver public goods. That the allocated money is not wasted nor siphoned off and every rupee well spent. The criticism needs to shift from “populist approach’ to the issues like lack of prudent, economical and efficient spending. It is a specific project, scheme, programme or incentive package that needs to critically analysed for its public utility or otherwise.

So far the projects are assessed by their financial performance—- whether they have been completed on time and within the original estimated cost. There is no study to determine whether a project has delivered the intended public goods. There is so much mismatch between financial and physical targets because projects have not been properly conceived, executed efficiently or delayed for want of funds..

While the MNAs and MPAs are responsible to and also accountable to their electoral constituencies and they need to deliver whatever they pledge at the time of elections, they should refrain from duplicating efforts or usurping rights of the district governments. Doing away with representative democracy at the district government level deprives people at the grass roots the opportunity to work for their own uplift. The common citizens facing heavy odds know their problems and their solutions better than their public representative.

As it is, the common citizen has at best a feeble voice in policymaking at the three tiers of governments. This cannot continue for long in view of rising social chaos in the country. There is no escape from ‘citizen-based’ participatory democracy.

It is also not to be forgotten that huge development spending at the time of elections and the immediately preceding period, will serve as a stimulus for economic growth in an environment where private sector is shy to invest. No doubt the federal as well as provincial governments need to reduce their non-development expenditure, improve their capacity for service delivery and rid themselves of their fat. The provinces should demonstrate their will and capacity to effectively tax farm incomes at the first available opportunity. Small deficits shown by Punjab and Sindh budgets can be justified because of the normal shortfall expected in development spending but the trend should not gather pace for them to fall in a debt trap.