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Govt imposing strict discipline to rescue economy

Govt imposing strict discipline to rescue economy


LAHORE: Budget making was a difficult assignment for the economic team of the newly installed PML-N government. Not only was the time short, but the choices before the budget makers were also limited. The numerous acts of omission and commission by the previous government cast a long shadow over the economy and it was not easy to find a way out of the quagmire of rising debt, falling revenue and uncontrolled expenditure. The fiscal year was nearing its end, the national kitty was empty and all major economic indicators were touching rock bottom.

It was in these daunting circumstances that the PML-N team of economic managers was called upon to provide a road map for the coming year. The choice was between presenting a populist budget affording some immediate relief to the common man through fiscal adjustments and tightening the belt by imposing strict discipline to rescue a bleeding economy. After much deliberation, the government chose the latter course. Taxes have been raised and subsidies are to be slashed. In the days ahead, there will be a slow, painful rise in prices.

Keeping in view the larger picture, the PML-N’s economic managers have tried to do the best they could, although at some places they unnecessarily overplayed their hand. For instance, they could have easily avoided upping the GST by one percent which will touch off a new wave of inflationary pressures and make life more expensive for the common man. Similarly, the budget makers did not allow even a nominal increase in the salaries of government employees who are out in the streets agitating.

On the issue of raising revenue, the government has shied away from direct taxation like wealth tax, capital gain tax, agricultural income tax, etc. and relied more on indirect ones. New taxation measures announced by the government include an increase in the general sales tax rate from 16 to 17 percent and withholding tax from 0.2 to 0.3 percent on cash withdrawals from banks. There is also no explanation why the government has imposed the Federal Excise Duty at the rate of 40 paisa per kg on imported seeds and Re1 per kg on locally produced oil.

The budget with a total outlay of Rs 3,591 billion envisages raising the revenue collection by Rs 455 billion and increasing the public sector development spending to Rs 540 billion. The fiscal deficit is to be reduced from 8.8 percent to 4 percent, and the GDP growth rate is to be raised to 4.5 percent, besides increasing the investment-to-GDP ratio to 20 per cent in the medium term. These are ambitious targets and economists doubt if they are achievable in the present circumstances.

Given the severity of the power crisis, the budget specially focuses on solving the problem of circular debt which is to be eliminated in 60 days. An amount of Rs 225 billion would be invested in the energy sector with Rs 107 billion from the PSDP and the remaining amount by Pepco/Wapda through government support to complete Neelum-Jhelum Hydro Power Project (1,000 MW), DiamirBhasha Dam and Hydropower Project (4,500MW), Tarbela Fourth Extension Project (1,410MW), Thar Coal Gasification Project (100MW), Chashma Civil Nuclear Power project (600MW). With Pakistan losing 2-3 percent of GDP annually due to the energy shortfall, the focus on these projects is justified and point in the right direction.

Given the fact that there is too much leakage and wastage in government expenditure, it is a welcome decision to abolish the Prime Minister’s and other ministers’ discretionary funds and put a ban on the import of duty-free vehicles by VVIPs. Other austerity measures include considerable reduction in the expenditure incurred on PM Office and PM House. Against the revised expenditure of Rs725 million incurred during 2012-13, the budget for the Prime Minister’s Office for 2013-14 is only Rs396 million, showing a decrease of 45 percent. Similarly, the budget for the Prime Minister’s House has been reduced by 44 percent. There will also be a complete ban on the purchase of new cars for the Prime Minister’s Office. But the austerity regime should not remain confined to the highest level. It should be applied all across the board, especially with regard to the use of government vehicles and local and foreign travel by ministers and bureaucrats.