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Budget 1993-94 - a ritual performed every year.

It is a cruel joke that the bulk of reliefs offered in the budget have been targeted to appease the relatively affluent classes in the country.

Presented in the backdrop of turbulent political scenario, the budget 1993-94 was expected to build positive hopes for national reconciliation for which the budget could provide the much needed economic stability. Institute of Policy Studies, Islamabad observes that the declared objectives and main plank of government economic policy was to lay the foundation of a self reliant economy. It would only be fair, then, that primarily its with reference to this objective that the budget proposals are evaluated. Commenting on the budget briefly the institute analyses the budget in the light of these two aspects.

It is well known that self reliance essentially means a living within sustainable means. This rules out any possibility of excesses. In more familiar terms, it would amount to balancing of the two basic accounts, budget and the balance of payments. Viewed from the point of view of balancing the two account it is evident that far from laying a foundation in this direction, the three budget of the present government have essentially amounted to following the path of drift that had been set by the previous governments. It is a common wisdom in the economic circles that there is very little control political leaders exercise in the matters of economic. The economic managers of the government have landed unequivocal support to this wisdom. It is difficult how the Nawaz Sharif government could ever establish as to what difference had it made for Pakistan economy if the government were headed by someone else. Not only that the two perennial problems (budget and BOP deficit) continue to persist but they have taken menacing proportions during the tenure of this government.

The Economic Survey 1992-93 painted a bleak picture of Pakistan's economy. The traditionally strong point of the economy, the high growth rate, suffered a set back, as it plunged to a trifle 3 pc during the year compared to 7.6 per cent in 1991-92. The agricultural output declined by 3.9. per cent. The growth of industrial production decelerated to the level of 5.6 per cent as against 8.3 per cent during 1991-92. (The popular expectation about the rate of inflation is far in excess of the 10% estimated in the survey. Credence to this expectation is landed by the sharp decline in the growth rate and enormous expansion in money supply, which expanded far in excess of the annual target within the first six month of the financial year. This was largely due to the expansion of credit in the government sector, which surpassed its annual target within the first six months), seems to have set stable at a double digit level, as it was reported to be estimated around 10 per cent in 1992-93, which was also the average rate during the last three years. The survey revealed that the two perennial problems of economic management, fiscal deficit has crossed Rs. 100 billion mark and the current account deficit in the balance of payment further deteriorated from $2.2 billion in 1991-92 to $ 2.9 billion in 1992-93.

Viewed in the background of economy's performance during 92-93, it is evident that the much trumpeted economic reforms and revolutionary economic policies, ostensibly launched by the government, have yet to bear fruits on the ground. More unfortunate is the realisation that there is nothing in sight which could build any hope for better economic conditions in future. For there is nothing in the budget which could point in this direction. The budget exercise, unlike its role as a launching pad for an economic agenda for changing the economic conditions of the masses, has turned into a ritual performed every year in a dogmatic fashion.

Although it has been established much earlier, the most significant development that has now taken a firm footing in country's fiscal management, is the primacy of debt servicing. In the present budget the numbers unequivocal prove that the trend has been well established for all times to come, as debt servicing is greater than defence expenditure by a comfortable margin of over Rs. 32 billion. This should not come as surprise if one looks at the recently initiated exercise of "rationalisation" in capital market. The interest payable on this debt is far greater than the paid in the pre-reform period to nationalised commercial banks and national savings centres to depositors and accounts holders. In the background of this "rationalisation there is no hope that the economy would be relieved from the burden of debt servicing in any meaningful way in the near future.

The present government stood committed through its manifesto to Islamize the economy. However, the current budget as usual does not give indication of any action in this direction. The pledge of Islamization was the basis of election of the present government, but it does not appear to be of any significance any more. The whole effort is a blind following of the interest-oriented capitalist economic system. The government is not taking any lesson even from its own confession regarding the ever increasing debt service and its consequent effects on the budget and current account deficit. The trends in debt servicing and the consequent growth in the public debt in fact cast serious doubts about government credibility toward Islamisation. In the wake of Federal Shariat Court's decision there is no indication that government considers its implementation as a constraint on its operations.

In the second year in succession the government has burdened the economy with an additional tax effort of Rs. 18.5 billion. In terms of its incidence, there cannot be two views that the greatest burden would fall on the low income groups in the economy. This becomes more painful when it is noted that no relief, except a partly reduction in the excise duty on phone calls, had been offered to the middle income groups. The salaried classes have been left in lurch with a promise of appointing a pay committee for revision in their salaries.

The major portion of this tax effort (about Rs. 7 billion) would come from the 10% increase in fuel prices. Given the significance of fuel as a central raw material in almost all productive activities, the increase is likely to have a straight impact of at least 1% on the general price level. This would obviously be most hard hitting for the poorest sections of the economy. As if this was not sufficient, it has been declared by the government that it would be revising the fuel prices every three months, so that the nation be prepared for further increase on this account during the course of the year.

The general increase in the sales tax from 12.5% to 15% and the inclusion of 17 additional items, which include such items as soup and fans, in the scope of sales tax would also have an adverse effect on the poor sections. The changes in the excise duty would have a similar effect on different groups. The increase in duty on fruit juices and inclusion of marriage halls etc. would affect the poor sections more than the rich.

It is a cruel joke that the bulk of reliefs offered in the budget have been targeted to appease the relatively affluent classes in the country. The extension in the exemption from income tax on capital gains, the reduction in the rate of tax on modarabas and significant reduction in the rates of duties on imported cars (from 56% to 200%) and a number of consumer durable, would benefit the rich and offer no relief to the poor sections. The jubilation of the stock market on budget proposals was, therefore, not surprising.

For the economic and social uplift, the present government pledged, inter alia, to launch a comprehensive programme of agricultural and rural development and establishment of essential rural infrastructure. To this effect three incentive packages and Productivity Enhancement Programme announced by the government during 1991-92 have been referred. Critical analysis by the specialists indicate that the incentives may not solve the problems as much as being envisaged. For instance the subsidy relief on fertilizer will not offset the adverse effects of subsidy withdrawal since 1987, which resulted in low food crop yields, particularly rice. The use of gypsum or sprinkler irrigation will not have immediate impact on production. Credit incentives for machinery and tubewells will mostly benefit the big farmers. The budget provides nothing new for the sector except the constitution of a Federal Agricultural Council under the chairmanship of the Prime Minister to review the sector problem twice a year, if ever the council met.

Majority opinion in the country has been demanding to expand the income tax base by taxing the landed aristocracy. The meeting of the agriculturists convened by the PM a few days back, culminated into constitution of a federal agricultural council, but it appears, it not dare to decide about the agricultural/income tax, can not for political expediency.

A reference has also been made to the incentives for rural industrialisation. This in fact, was a scheme initiated by the previous government in 1990. The scheme was taken up by the present government, but never pursued with seriousness the.

In the absence of a meaningful rural industrialisation programme, the rural employment will go on aggravating further and so will open unemployment increase in the country. On the macro-economic front, the budget does not point to any ground work for relieving the economy from over-burdening pressures. Despite the philosophical lecturing on the perils of budget deficit, there is nothing to offer to the nation by way of a concrete proposal for retrieving the economy from the habit of over-spending. It has been simply left to the nation and parliament to find a way, and for the government, it has chosen to keep on living beyond its means.

The deficit in the budget has been estimated at around Rs. 85 billion. Judging from the past trends of differences between budget and actual figures (last year it was budgeted that the deficit would be Rs. 64 billion whereas the actual deficit came to Rs. 95 billion), it could safely be said that actual deficit would be any where from Rs. 120 to Rs. 130 billion. At this pace, it would be virtually impossible to manage the economy, as the interest payments on servicing the public debt, which are rising would soon reach unbearable proportions and the country would come under heavy inflationary pressures, going into range of 20 to 35%, thereby unleashing economic chaos in the country.

The position of country's balance of payments is not different. The current account deficit has worsened during 1992-93. If any thing, the budget for 1993-94 has presented proposals, many relating to further liberalization of import restrictions, which are likely to further weaken this position. Despite the claim to the contrary, the greater portion of resources for annual development plan, 18% as opposed to 12% domestic, are projected to come from foreign source. This is yet another cruel joke with the nation, which is constantly fed with the rhetoric that the government is enabling the country to stand on its own feet. With the conditions of the two gaps as above, there is no credibility left of the government about its sincerity with the cause of self reliance. The way the three budgets, have been administered has more than proven that the economic management has long been abdicated by politicians to the bureaucrats.
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Title Annotation:Special Section: Budget 1993-94; Pakistan
Author:Khan, Muhammad Ashraf
Publication:Economic Review
Date:Jun 1, 1993
Previous Article:Taxation measures.
Next Article:Annual development programme - 1993-94.

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