THE country’s budget planners are indicating that the budget for 2006-07 will be “pro-poor and investment friendly” aimed at providing the much needed relief to the common man hit by unchecked price increases.
The common citizen also deserves a fair share in the benefits flowing from a high growth rate of 6-8 per cent.
But the big challenge for the budget-makers is to mobilise additional resources for a meaningful relief package for low income groups, keeping in view a sharp increase stipulated in development and defence spendings and widening fiscal deficit.
These planners and the officials of the ministry of finance also say that since the president and the prime minister have made a promise to offer some relief, increase in the salaries and subsidy on more food items are under consideration.
However, in informal discussions they concede that in the absence of any additional resource mobilisation, it would be difficult to offer any meaningful package of relief to the people including the pensioners.
No doubt, employment will be generated by initiation of new mega development projects which require substantial resources next fiscal. A part of the budget will be funded by the international donor agencies. But how would the government manage additional resources to fulfil its development agenda and cover the increased relief spending is an important challenge for the policy makers, the officials say.
Also, there are credible reports that the government is likely to provide 18-20 per cent increase in the defence budget. This will be done keeping in view 27 per cent increase in the Indian defence budget.
The armed forces are believed to have sought additional Rs50 billion in the next budget to start implementing their $9 billion military procurement programme over the next five-year period. If that happens, it would mean that the defence spending will be set at Rs273.5 billion against budgeted Rs223.5 billion in the current financial year.
Under these circumstances, it would be all the more difficult for the government to offer what is generally said, any “tangible relief” despite the general elections scheduled for 2007.
The expenditure for general administration is also expected to be increased considerably keeping in view the fast declining law and order situation, especially in tribal areas of North West Frontier Province (NWFP) and Balochistan.
One senior official said the government may offer “some relief” to the people in the next budget because of a high rate of inflation and coming general elections. He concedes that government has failed to contain the unprecedented price hike.
Likewise, he says that the much talked about price control committees have failed to play their due role with the result even the prices of pulses have risen to Rs80-90 per kilogramme. “ It is political expediency to offer a relief budget this time”, he said, hoping that the government would mange additional resources. He, however, could not identify these new resources for increased revenue. Generally, it is said that Central Board of Revenue’s tax-to-GDP ratio is expected to increase from current 9- 9.4 per cent by June 30 this year and that for next year, more resources are expected to be generated through various tax adjustments and bringing improvement in the present duty structure.
The budget planners are proposing to further restrict money supply to lower the inflation. But by doing so, they may discourage investment. If interest rates are further increased, the cost of doing business would mount.
The government will have to seek improved trade offs between inflation and economic growth but ensure that there is no increase in unemployment.
Another challenge for the government would be to ensure minimum budget deficit next year. Officials admit that the 2005-06 GDP- deficit target of 3.8 percent was hard to be met. The year may end up with a deficit of more than four per cent, some say 4.2 per cent by June 30, raising concerns among the donor agencies, says an official.
Pakistan did not opt for any new IMF programme after the expiry of $1.4 billion Poverty Reduction Growth Facility (PRGF) in 2004 but its economy is monitored by the Fund. The IMF would certainly note this trend in their country report on Pakistan. The Fund has already expressed its concern over a high rate of inflation. Other international lending agencies look closely at the the IMF assessment and international credit ratings before offering loans and credits. “Since we cannot avoid consultations with the IMF under Article IV as being one of its 140 members, the government will have to keep in mind the advice of the Fund over the issue of budget deficit and inflation”, says another official.
Pressure is mounting on the government to look after the poor by providing them affordable health and education facilities besides ensuring some reduction in increasing prices. Besides, inflation also hurts economic growth.
The new sources of revenue for the next budget have not been identified. Resources are being drained also by corruption. Then the government’s failure in utilising 100 per cent development funds complicates matters further.
For the current financial year, funds earmarked for the Public Sector Development Programme (PSDP) are not fully utilised by various ministries, divisions and the provinces for a variety of reasons. This problem has remained unresolved for decades. Every year, the Planning Commission and the ministry of finance come up with lame excuses about less budgetary spending but every time they fail to satisfy the people.