KARACHI, May 8: The next national budget is expected to focus on fiscal stimulus for capital spending on modernization and expansion of the country's industrial capacity.
The CBR Chairman Abdullah Yousuf told Dawn that the government is looking at "fiscal measures" needed to boost investment.
To further encourage business to grow, the public sector spending is intended to be raised from present Rs160bn to Rs200bn. As the economists say, public sector spending has a multiplier effect. Traditionally and before the current economic reforms, investments in Pakistan have been state-driven.
The fiscal stimulus would be well-timed. The budget is being made in a much improved economic environment. Confidence of local business has been largely restored. Corporate profits are up. Growth rate is at respectable 5-6 per cent. The exchange rate is stable on the back of $11.5 billion forex reserves and interest rates are low. Improved capital spending is modernizing existing capacity. And there is unanimous demand of trade bodies that corporate tax and sales tax should be reduced. Business want to build up what has already been achieved. Press reports indicate that the government is far more receptive now to business demands.
It would be the first budget after 1999 to be formulated at the fag end of the IMF's fiscal stability programme, ending in November 2004. It would mean the priority, the sequence and the pace of second generation of reforms would be largely set in the future by the government rather than by the Fund. A voluntary compliance would replace IMF Manual, a great challenge indeed.
Although the IMF programme is still on, insiders say the consultations between the authorities and the Fund officials on budget making are not as close as they used to be in recent times.
The opinion among official economists about IMF loans are divided. Some say the IMF loans are cheaper than credits extended by other multilateral lending agencies and the conditionalities are the same. They think borrowings from IMF should not be discontinued.
Others maintain that a prolonged presence of the IMF in any country indicates that it is not out of the woods and discourages foreign investors. Whatever the merits and demerits of an exit from IMF programme before completion of the reforms, there is no doubt that the national decision making in the realm of economics would be henceforth be more pronounced.
The budget would come in a changing political scenario. Before the end of the current year, President Pervez Musharraf is committed to becoming a civilian head of state. In some quarters too much importance is given to his uniform as a factor for political stability. This point of view ignores a near consensus in emerging and developed markets that it is a civilian-military coalition that can impart stability in this turbulent world. In the US, labelled as the earth's greatest democracy, it is the Pentagon which sets the strategic goals.
To achieve stability, the various PML factions and coalition parties are being asked to unite under one party flag. Fragmentation in politics creates instability.
Under 3-year military rule, the country's economic policies were shaped by economic managers with IMF prescriptions. Things began to change when an elected government took over. Civilian rulers, responsible to the parliament and to the electorate, are more susceptible to the domestic social and economic compulsions. With the economic muscle that Pakistan has acquired after 9/11, the budget would be more domestic-driven than those formulated in recent times.
Perhaps, the government's approach was captured accurately by Managing Director of Siemens Sohail Wajahat Siddiqui when he said that the "take home value" of CBR chairman's "attitude" towards resolving business problems "is very high". It was a vote of thanks to the chief guest at pre-budget MAP seminar held in Karachi earlier this week.
Abdullah Yousuf summed up his eloquent speech with the remarks that Pakistan should follow the Malaysian model where government is a joint venture partner in "Malaysia Incorporated" and gets its 30 per cent shares in form of taxes. The government has a stake in Corporate Pakistan.
To sum up, the next year is expected to be much better for business and investment than the outgoing year.