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Budget and economic management

Management of an economy is the most arduous assignment for the governments owing to the socio-economic complexities and the linkages of the economy with the outside world. Monetary and fiscal policies choreographed by the central banks, trade and commercial policies and budgets prepared by the government are the tools that are employed for economic management. Budget, however, is the most important and potent instrument through which resource mobilisation and growth strategies are implemented that have a direct bearing on economic development of the country and well being of the masses.

Economists and economic managers around the world are unanimous in their views that for the health of an economy and ensuring a sustainable growth, a broad-based and equitable taxation system having greater reliance on direct taxes is absolutely essential. Unfortunately the taxation system in Pakistan is bereft of all these ingredients. It is neither broad-based nor judicious. What a shame that in a population of more than 180 million, only 2.7 million people pay income tax. The successive regimes have failed in their duty to broaden the tax net and have invariably relied more and more on indirect taxes that confronted the country with a perennial phenomenon of spiralling prices, adversely affecting the people at the lowest rung of the society.

In a political system of graft and entitlement, the leadership never tried to break this vicious circle or shall one say did not show any interest in alleviating the sufferings of the masses groaning under the weight of the burgeoning poverty. They without any exception relied on prestige projects motivated by political considerations rather than dictated by the economic realities. The governments determined their development and non-development expenditures first and then went for raising resources. In the absence of the availability of necessary resources they relied excessively on borrowing from the international institutions, friendly countries and the banking system within the country. The result is before our eyes. The country is faced with a yawning fiscal deficit of 8.8 percent of GDP, whopping internal debt of Rs 14 trillion, circular debt of Rs 500 billion and a crippling energy crisis that has caused a decline of 2 percent in the GDP. The present government inherited an economy perched on the edge of a precipice. It indeed had to make tough choices for the revival of the economy by extending the tax net through finding new avenues of raising resources; rejuvenating the industrial sector through incentives and concessions; upgrading and sustaining the development process besides ensuring that the masses are not adversely hit by these measures or are adequately compensated for the negative impact wherever it occurs.

The government has taken some bold decision in regards to mobilisation of resources and reduction in the fiscal deficit. A conscious effort has been made in the budget to raise the internal revenues to Rs 2,475 billion through extending the tax net and the levy of some new taxes on the hitherto non-contributory sections of the society. There is a discernible shift to direct taxation through the introduction of withholding tax of a large number of transactions. The government hopes to bring additional 500,000 taxpayers into the tax net. Practical austerity measures have been initiated for the first time by withdrawing the discretionary fund of Rs 42 billion at the disposal of the Prime Minister. Similarly discretionary funds for Ministers as well as secret funds at the disposal of certain ministries have also been abolished in addition to across the board cut of 30 percent on the budgetary allocations to the government departments. These measures are estimated to save Rs 40 billion.

Some circles including the opposition parties and economists are critical of GST, maintaining that it is going to hit the poor people. Their argument is partially true. They are, however, raising these objections without looking at the whole picture of the economy and the compulsions to enhance revenue mobilisation. Through a combination of taxation and fiscal measures the government contemplates to reduce the fiscal deficit to 6.3 percent of GDP during the current financial year and to 4 percent by 2016; a step that can help tremendously in the turnaround of the economy.

Raise in the salaries and pensions of the government employees, increase in the allocation for the schemes in the social security net, provision of sugar and atta on cheaper rates through Utility Stores, Qarz-e-Hasna scheme, training programme for educated youth with stipend paid and loans on soft terms for starting their own businesses are imaginary moves on the part of the government not only to dilute the impact of taxation measures on the vulnerable sections of the society but also productive undertakings in the sense that they will also generate employment opportunities for millions of people. The replacement of across the board subsidies with targeted subsidies will not only benefit the poor but also save substantial funds for spending on more pressing needs.

In regards to nudging growth process, the government has allocated Rs 1,115 billion for the PSDP as compared to Rs 730 billion last year. The emphasis on tackling the energy crisis and improving the communication infrastructure are also steps in the right direction. The contemplated focus on Public Sector Enterprises (PSEs) to either turn them into profitable concerns or to privatise them to save Rs 300 billion that it is spent annually from the government exchequer to keep them floating, is also a timely and utterly-needed initiative.

The incentives and concessions provided to the revival of the corporate sector to play its due role in the industrial development, improving job market and enhancement in exports were also direly needed. Apart from some concession on the import of some machinery items the enhancement of tax holiday period from 5 to 10 years in the export processing zones is a very prudent move to revive industrial activity and investments.

The government in addition to relying on the measures for domestic resource mobilisation is also relying on financing the budget from proceeds of privatisation, auctioning of 3G licence, access to international capital market, coalition support fund and assistance from some friendly countries. Some people think that this approach is risky and in case of any avenue not coming forth as envisaged, the country might face enormous difficulties. They however, have failed to suggest a viable alternative. The budget may not have fulfilled the expectation of many as is usually the case, but realistically speaking, in the present economic environment; the government has indeed taken very courageous and people-friendly decisions that will show their real impact in the times to come.

Malik Muhammad Ashraf, "Budget and economic management," Business recorder. 2013-06-23.
Keywords: Economics , Socio-Economic , Economic development , Economists , tax system , Income Tax , Political system , Energy crisis , Pakistan , GDP