Budget talk
Cyril Almeida sifts through the complexities of the budget and discusses its implications.
For all their importance, budgets are terribly dull and boring. Page after page of numbers and statistics, paragraph after paragraph of mind-numbing prose, it truly is an event for the policy wonks. This year was no different. The only thing vaguely glamorous about the budget speech on Saturday was the person making the speech, the elegant Hina Rabbani Khar. On Sunday morning though it was business as usual again as the portly finance adviser, Shaukat Tarin, addressed a press conference and fielded complicated-sounding questions from the media.
What does it all mean? Stripped of all its complexity, a federal budget is like any individual’s budget: you calculate your income, you determine how much you will spend on what, and, if your total expenditures exceed your total income, you figure out how much you will borrow and from where.
Borrowing is not always a bad thing — an individual could be borrowing to finance his way through college, a government to invest in infrastructure — but it’s necessary to keep two things in mind: one, before you spend money you don’t have, you must be reasonably certain that you will be able to borrow from someone; and, two, you should spend borrowed money wisely.
If an individual borrowing to go to college spends the money on fancy meals and trips to Vegas instead, he’s setting himself up for a double dose of trouble: not only will he have foregone an education that could have gotten him a better job in the future, he’s now stuck having to pay off a loan from his same meagre income.
So on Saturday, when Hina Khar told us that our governments, provincial and federal, would spend Rs2.9 trillion but ‘earn’ only Rs2.2 trillion, the immediate question was: where are you going to get the Rs700-odd billion to plug what’s technically known as the ‘fiscal deficit’?
Khar gave a hint in her speech: the government is relying on the international community to help out. Shaukat Tarin expounded on that same theme in his press conference. The essence: money has been promised to Pakistan by the international financial institutions and foreign governments, and the government here has factored that into its spending equation.
The economic team could be criticised for planning to spend money it doesn’t yet have, but it’s important to remember the context: security concerns are driving the world’s commitments to Pakistan at the moment, not altruism or vague business opportunities. So, given the assurances that have been held out in private and public for some time now, it could be reasonable to expect that the money promised will arrive on time.
What’s obvious though is that the government cannot drop the diplomatic ball now: it needs to make sure that the slips between cup are lip are as few as possible, or else it will be left holding a very large bill at the end of the year with not enough money to pay for it. In that case, analogous to the student blowing his loan on extravagances, the government will pay for wasteful current expenditure by slashing development expenditure — that old trick of governments here.
The second part of the borrowing equation is, borrowing for what?
Here, in Hina Khar’s words, is the purpose behind that Rs2.9 trillion of spending: ‘The government is managing the affairs of our country within a strategic policy framework expressed in its Nine Point Agenda of economic and social recovery.’
Khar and Tarin can did get into the nitty-gritty of the government’s ‘Nine Point Agenda’, but at its heart the plan is this: get the country back to a 4.5-per-cent GDP growth rate b 2012 and bring inflation down to 6 per cent.
The unpleasant truth is that following the international commodities and oil shocks towards the end of the Musharraf area, the economy here has been plunged into what is known as stagflation: high inflation coupled with low growth. Few things give policymakers more sleepless nights; the problem with stagflation of this variety is that the usual remedies for fighting inflation end up worsening economic stagnation and vice versa.
That partly explains why the initial reactions to the budget have been lukewarm or negative: the policymakers had few pleasant choices. They have though tried to reach into their bag of tricks and pull out a budget that amounts to a mild stimulus meant to massage growth or at least stanch the losses. And they have tried to give the recovery a so-called “human face”, which essentially means an attempt to have more equitable growth, or, conversely, spread the pain more evenly.
But as people start to dig deeper into the budges, don’t be surprised to hear: ‘We’ve seen all of this before.’ They would be right. The budget, in addition to being underwhelming, has a familiar ring to it: these are plans of old, churned out by governments over the decades and repackaged as a ‘new beginning’ several times over.
Which means that in a way we are back to square one: people have long known what has to be done to nurse the economy back to health or even to become a middle-income country; what’s always failed is implementation.
The government has given itself three years this time. But there are at least three threats that could yet undo its plan. One, as mentioned, the money from abroad may not arrive on time. Two, new shocks to the economy may yet occur, be they in the form of oil prices on the rise or militancy buffeting the economy. And, three, politicians may be politicians and distract themselves from governance.
That hoary proverb — ‘time will tell’ — is as applicable as ever: only time will tell if this time will be different.
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November 10th, 2009 at 12:09
Thanks for your information.
July 8th, 2009 at 1:47
is it wrong to ask ourselves that if I have to buy electricity, drinking water, security for myself and my family, what am i paying my taxes for….. for the security and entourage of the politicians? for their foreign tours? for corruption to increase in the country?
how and more importantly when will this country be fixed?
do we realize we are leaving nothing for out next generation – nothing worthwhile at least.
June 22nd, 2009 at 12:51
Well I think there are a few flaws in the budget. The most important to us, the youth is the 20 paisa tax on sms. This is ridiculous, I think they must take this tax back immediately. They will not benefit from this tax in fact they will lose the revenue they earn on sms.
June 18th, 2009 at 16:09
Bad budget. Defence budget increased by 15% is worst. We are a poor nation. We cannot afford such luxurious perks army officers are giving. If they are truly patriotic, army should first reduce their perks and utilise that money to give basic necessity to many poors. See the vast difference between army residential base and inside any common place in our cities.
On the other hand education budget reduce by 17%. If Pakistanis had been properly educated, we would not have problem with terrorsim, narcotics, nepotism. Our economy would have been in good shape.
June 18th, 2009 at 11:25
Budget of 2009-2010 served a deadly blow to the middle class and a sigh of relief to the ruling class.
Actually the budget presenters rule the people of this country like slaves.
The master piece of our budget is that it cannot be implemented because I feel all the figures are wrong. That is why mini budgets follow our main budget. Through this DAWN BLOG, I would like that Dawn News must present a programme on the TV and invite the general public debate from all the class, and invite the Finance Ministry to answer the questions of the general public regarding their queries. Invite the president and Prime Minister as well in this debate and make them listen to the views and if possible ,they should answer as well. Can your DAWN NEWS TV do it.
June 17th, 2009 at 3:09
The worst Pakistani budget in the last decade is no surprise givent the instability that Pakistan has faced over the last 12 months. Whilst the politicians were enjoying themselves, doing deals with one another to secure their positions and generally undermining thir opposition counterparts, the economy took a back seat and was on autopilot for most of the time. When things became really bad they resorted to a tried and tested method from their experiences of the 1990’s; get a loan from the bank (IMF) to tie you over the next several months. Such a shame on the people of Pakistan – it wasnt so long ago that the Pakistani economy was being touted by many western analysts and economists as the next potential Asian tiger. Well it was a nice thought while it lasted anyway.
June 16th, 2009 at 15:59
The prime minister has been allowed to spend Rs. 100 million every month on his foreign tours (which are entirely unnecessary). The Queen of Spain recently travelled to UK, paying 14 pounds (Rs. 1,700) air fare. Every day, the nation pays each of its ministers Rs. 100,000, while the expenses on the president’s staff also amount to Rs. 100,000 per day. All this in a country where seven out of ten Pakistanis barely manage to survive on Rs. 160 (US$ 2) per day. Didn’t I read somewhere that people get leaders who are just like themselves?
June 16th, 2009 at 14:41
The important jolt of her speech was additional tax of 5% on the income more than 1000000/-. is it justified? We are already tax payers , what we are getting out of it?
June 16th, 2009 at 12:31
Mr. Zafar Akhtar says that the agri should be taxed.
For heavens sake do not do it. by taxing the agri produce you the farmers will stop growing food and they will sell their lands to the industrialists. high industrialisation will reduce the arable land and pakistan for that matter any country will have to beg for food.Please remember cultivable land is less and once this is used for building factories, nothing can grow there.this has happened in tamilnadu.In my city within just 10 years. thousands of acres of culitvable land is turned into software parks and rice which used to sell at 18-20 rupees per kg is now selling at 30-40 rs.
People eat food and not cars, softwares and shoes.
June 16th, 2009 at 10:23
Cyril – I only wish if budget would be in as plain words as ur column. U in simple most words have spoken of common man’s mind.
I (don’t) wonder why these finance jugglers dont understand this and why they always have to juggle up figures that are not even remotley connected with reality.
The state in our case is to only draw money from our already shallow pockets.
One good thing is happening in an otherwise grim scenario: taxes on Tobacco.
Tariq Malik
Islamabad
June 16th, 2009 at 9:28
Pakistan should learn from Bangladesh. Since it does not have any obsession similar to Kashmir, its terms with India are friendly. As a result, it spends little on defence. Major part of its budget is spent on development. It has created a big export sector in textiles. From 1971, it has improved a lot today. Its per capita income is comparable to Pakistan’s. Among Pakistan, India and Bangladesh, the last one has lowest population growth today.
June 16th, 2009 at 2:17
I do not only agree with the columnist, but with each paragraph, each line, each sentence and each word he uttered.
There could only be some godsend or miracle that can put this country to right track.
My fellows! We need a revolution… nothing else… We have to begin from the begining. The budget seems only a timeworn and a stale joke… huh!!!
June 16th, 2009 at 1:01
To cut long story short, this budget is going to be a big flop, it lacks the vision that is required for a prosperous country, and I can’t see any industry or business getting any gain from this budget. Govt. has only passed on the buck to already suffering middle class, no remedial measures taken for the prosperity of our agriculture sector.
We will be heavily banking on funds from international community which will only serve as oxygen to keep the patient alive.
June 16th, 2009 at 0:51
“Every successive government in Pakistan will be worse than its predecessor.” MA Jinnah. This will hold true and we’ll uselessly cry unless we the indiginous and good people, engineers, doctors,technicians, agriculturists, farmers, labourers, econonomists, statisticians bla bla come forward and trust ourselves. Afterall we have been living hear for past thousands of years. Our foregathers were not beggers like us. The were poor but dignified and knew how play with water and soil.
This land needs one revolution.
June 15th, 2009 at 21:37
No doubt, “time will tell”———–but, before that, a positive approach needs be applied to overcome ‘the ills of deficit-finanacing’ as this will enable the leaders to stick to their ‘leadership’ role instead of a ‘rulership’ role.
For this purpose, a few more “eye-openor exellent featured articles” are needed before the spending starts. And that is to guide the leaders to stay within means.
June 15th, 2009 at 20:53
no one iz crushed in this budget except of middle class and i think they r trying to change middle into low standard.
this iz all game plan to make us fool and reality iz v r.
June 15th, 2009 at 20:49
as slamo alaikum
i think this nt a budget its only a trick of words tht simple citizen didnt undrstnd. they r jst doing da same tht happened in psat.
June 15th, 2009 at 18:31
It is just for the rich person, not for a poor person. A poor person did not need a cell phone or a car. He required bread, butter and shelter.
June 15th, 2009 at 17:57
I still cannot understand why the defence budget was increased. the same amount could have been used to settle the IDPs.
May be the defence budget has been increased to buy US armaments to give jobs to the american ordnance factories.
June 15th, 2009 at 17:56
You are correct in pointing out that everybody knows which policies will set the country on the path towards economic growth and poverty reduction. However, there is something new here, specifically the social protection offered through the Benazir Income Support Program. The BISP is a one of a kind program in Pakistan’s history, and has more than trebled in size since last year. Funds allocated to the health and education sectors have also increased.
For these important pro-poor measures undertaken in the face of pressure from the IMF to curtail spending, the PPP government surely deserves a little more credit.
June 15th, 2009 at 17:50
In coming days, our officials like beggars will be flying to different financial capitals to fill the 722 billion gap. I am not sure how much is the alms money already added into budget to meet day to day expenses, but it must be in hundreds of billions. We cannot meet our daily expenses and consider ourselves an independent country. Instead of begging, why our ruling elite do not bring their foreign assets back home.
June 15th, 2009 at 17:30
Last Year our economy has really suffered a lot owed to numerous factors both endogenous and exogenous. When higher oil and commodity prices were deteriorating our import bill and balance of payment. Instead of responding to these challenges shrewdly, our politicians and policy makers were worried of their elections manifesto and delusive speeches about the economy. I think that non responsive behavior of the government is the main cause of the plethora of problems we are facing right now. Had the government been more responsible in its role of managing the economy, conditions would not have been as bleak as right now.
Commenting on this budget I would say that it’s just represents a conventional approach to stabilize the shattered economy. The estimates given in this approach look too ambitious to achieve whether it is on the revenues side or expenditure side. Tax target of about Rs 1.5 trillion seems very difficult to attain with the GDP growth of about 3 percent and manufacturing growth nearing 1.3 percent. Given the fact that FBR has not been able to achieve this year target of tax about Rs 1.3 trillion, our economic gurus are expecting the revenues to grow at a rate of 15 percent and achieve the figure of Rs 1.5 trillion next year in depressed economy
Seems amazing!
Obviously when the government falls short of its revenues the first thing to be on cut list would be the development expenditures (PSDP). This is what the previous government had been doing to curtail the fiscal deficit in short run, but if you look at its look term consequences, it’s quite detrimental to our economy. PSDP is the only amount that government spends on the infrastructure developments in the country. By reducing PSDP they are restricting the future investments and new companies from coming into our country. Because of such endeavors of government we are sacrificing future growth of our country and the chances of being a developed country of the world.
Another interesting number that I come across in this budget is about Inflation. Government intends to bring it down to 9.5 percent in the coming year from 16 percent currently. This seems very unrealistic given the fact that international oil prices are again surging towards 75 or $80 a barrel. Increase in oil prices means that rise in prices of almost all other things because of the higher transportation cost. Further compounding the problem, government is adding a Carbon Surcharge to Petroleum products. This would also increase the domestic POL prices even if the international oil prices come down.
Talking about emphasis on the welfare and relief to the common, very little is being done on these issues in this budget. Consider the mere allocation of just of 3 percent of GDP on Health and Education expenditure. I don’t think this is sufficient enough for a country like Pakistan where more than 50% of the population is under the bracket of 25 years; government should be investing more on education and health because it is this young and qualified human resource that brings growth and prosperity to a nation.
Summarizing I would say that this budget has to be growth orientated and should be focusing on reducing poverty, unemployment and inflation which is affecting people of Pakistan. Let us see how successful the government is meeting its target and bringing economy back to it track of growth.
June 15th, 2009 at 16:15
Where can one find an electronic copy of the proposed budget?
June 15th, 2009 at 15:42
I agree with Muhammad Ishaq’s comments that Pakistan economy will grow after end of terrorism and good relations with India and USA. Indian economy is on a strong footing due to its focu on progressive economic policies only. On the contrary, successive Govt’s in Pakistan obsessed with Kashmir issue, spent major portion of their GDP on defence and other related activities which brought its economy on the standstill.
June 15th, 2009 at 14:48
what was the need of imposing carbon tax. you can see how much familiar are our rulers with pakistan. shaukat tareen thinks that public transport exist in pakistan. how funny, he is comparing pakistan with usa regarding public transport.
June 15th, 2009 at 12:58
Rich friendly budget presented by the Governement. Astonishing. Poor man does not use a cell phone which can effect his Rs 6000 per month income. He needs bread and better living standard . His children need education.
Every one knows that how to bring maximum people in the tax net , but as this governement also does not want to suffer the back lash of the fuedals , they increased the taxes on the salaried class and further reduced their income in this inflated regime. My point is that instead of giving Rs 70 billion to BSP why cant they carry out developement by giving the payable money to KESC so that they should not have any excuse of switiching off their turbines.
This budget will be followed by so many mini budgets. Every second or third month,the tarrifs on utility bills will be increased , and the politicians sitting in the assemblies will be mum, because they get every thing free in this country. Why can’t we impose the bills accross the board on every individual of the country to pay what ever facility he uses. This is tax payers money and not an indiduals investment.
The prices of the cars has been reduced , because the higher echlon gets effected and he/she has to [pay more. Petrol prices are increased because those sitting in the government do not pay a single penny. It is all the working class which suffers. I suggest the governement should call an open debate on this budget and the PM-President ,and federal ministers – Finace should all be made to sit and reply to the queries of the individuals. But this won’t happen in this democratic country , as it is very difficult to face the public.
June 15th, 2009 at 12:57
I see the budget has not curtailed the unnecessary expenditure which would have reduced the deficit.Additionally we were expecting tax on agriculture which has never happened.
When would the country learn from experience that avoiding external assistance would benfit the country in the long term .This is only possible if revenues are increased and expenditure are reduced.Very simple
June 15th, 2009 at 12:19
excellent
esp the last sentence
“That hoary proverb — ‘time will tell’ — is as applicable as ever: only time will tell if this time will be different.”
June 15th, 2009 at 11:44
Plugging the fiscal deficit is believable.
But Ms. khar goes overboard by saying that the inflation can be bought down to 6%.
Fortunately she is modest enough to say that growth will be 4.5%.
To bring down the inflation to 6% the GDP should be at this hour should be not less than 7%
June 15th, 2009 at 11:31
All we can say is that indeed “time will tell” but let us pray this time it is different all together and it is for better. Let us help the government instead of only criticizing it.
June 15th, 2009 at 10:13
It is no different this time, probably even worse. Almost all the burden has again been passed onto a common man; with the cost of living going exponentially high with increased tax net and removed subsidies. Even if the tax net has been increased, profiteers, hoarders, Juria Bazaar shopkeepers and rich agriculturists have been excluded again! Hotels have not been taxed despite their soaring high profits.
The government played hide-n-seek in the first few months till they could get hold of the “IDP in swat” issue to distract the masses. All of this without any accountability or check-n-balance; as we all saw in earthquake relief progarms or earlier “Qarz Utaro Mulk Sanwaro”.
You are right in saying that new names and faces are given to the same old games.
June 15th, 2009 at 9:45
Almeida,
Your comments are very dull. You are pessimistic. But you are indicating in right direction. We need to get rid of terrorists, decrease expenditure on defense and create good image in international community. We need to cultivate good relations with our neighbors especially India, Iran and Afghanistan. We should not abuse USA, they are helping us, financially and eliminating terrorists.
June 15th, 2009 at 9:27
Dear ones,
It is not nice to criticise our government but some time we are compelled to cry out.
This borrowing for good or eatable infrastructure projects will only load our country debts. Make budget less than resources and plan to pay all foreign loans in a certain time. Try to increase resources by industrial revolution. Always keep education and self employment as top priority.
Our lords for God’s sake save Mumlikat e Khudadad Pakistan from this heinous word called “DEFAULTER”.
Any budget either good or bad will not give any benefit to poors except couple of the employed ones. Poor gets only aftermath of tax in form of utility bills, rents, hike of commodity prices. Make small budget, it will help to raise the head of poors to work for themselves. And it will decrease the speed of collection of money in the hands of hierarchy which will save life question for few poors!!!
June 15th, 2009 at 7:09
Dear Cyril,
As always you wrote an interetsing article and which deals with a technical subject with the most understandable expression. Agreeing with most of your thoughts, I would argue that ‘how to finance the deficit’ is the real issue. Most of the economics is about making choices through opportunity costs. I think that the presence of profound emergency both on the military and economic front is reflected more in newspapers and media. The way the government is being run or resources being used hardly shows any signs of serious resolve of the state to finance the deficit through its own resources. South Korea wanted to create an ‘independant economy’ – going away from US aid/foreign aid dependance. They managed it well. We are such shining starts that we forget that someone has to foot the bill for a bad structure of public finance. In Pakistan, these are the people of working class who have to bear the financial burden both through the direct and indirect ways.
June 15th, 2009 at 3:32
Well said. I will only observe that governments anywhere — adept enough, as Mr. Almeida notes, at distracting themselves individually and collectively from good governance — are still more adept at distracting the electorate from notice of their poor governance by loudly assigning blame to scapegoats, bogeymen, bugbears, and bêtes noires, of which there is no shortage, both real and imagined. The common man, of course, ultimately pays for everything, including the price of poor governance.
June 15th, 2009 at 2:19
Dear Sir,
Do you relly think these people designing the budget have at any stage in their lives lived the life of the poor? When all of Pakistan is udnergoing power blackouts, THEY (the Other of the masses, the subjects of the buget) present the Budget in air-conditioned Assembly. Instead of Greek tragedy, I wish I was taught a course on such a tragedy. These people think just because they meet poor people dressed as drivers and chauffers, or the people in their constituency, they can speak for the poor. We the poor are the Spivak’s Subalteran. Hunger, malnourishment,inflation etc are not metaphysical creations of the fancy of face. You can not experience them in your meditations; neither can your Filipino Aaya for their child can feel it. Come stay a day with me, and then I’ll ask you, “Do you now know why I am a fundamentalist? At least my beleif, how irrational it may be, gives me hope to live.”
June 15th, 2009 at 1:14
Shaukat Tareen had indicated that the new budget would seek to broaden the tax base i.e. tax those who pay very little to the exchequer as opposed to increasing the tax burden on those who are already contributing significantly. However it seems Mr.Tareen couldn’t quite achieve this. Not only has this budget failed to introduce income tax on agriculture, there is also no tax on income earned in the stock market,in real estate and no increase in the low income tax rate on services. Manufacturing as usual will continue to bear the cross of national duty other sectors are somehow excused from. Our unfair and skewed tax structure remains incredibly immutable.
June 15th, 2009 at 0:31
Agree with the author that defining the national budget is a complex and consensus driven process requiring compromises.
1) Taking a Perspective in the Short Term:
The author/owner of the blog says: “Stripped of all its complexity, a federal budget is like any individual’s budget: you calculate your income, you determine how much you will spend on what, and, if your total expenditures exceed your total income, you figure out how much you will borrow and from where”
That is the The Rule for more normal times.
Times today are not normal. Here when you have this short to medium term situation in which the violent turmoil is the new normal and there is little upside on the national income front. And at the same time there are benevolent donor doling out billions over the next few years with other friends of the nation who may add a tad to the kitty. Given all this, the question is not how comprehensive is the budget in addressing the requirements for putting the country on a path to middle-income and growth. The question should be where should be the handful of things that it has to over-focus on to pull the country out of its current predicament?
Metric: Budget for managing the IDP situation, perks of the police/military/paramilitary reclaiming areas from Taliban and governing them, moneys allocated towards law-and-order,
2) Taking a Medium term perspective:
Planning for the potential impact of commodity prices, inflation, other possible economic shock – one has very little control on this. i.e. other than to build bridges with donors, lenders, commodity producers and neighbors.
3) Taking a Perspective in the long Term:
Future of Pakistan will be more secure in focusing on an educational system for the masses that is not too radical and more secular. Given that it is easier to manage behavior than motivation of people(s) – parts of the budget can be effectively deployed to manage this move towards a less radical but dependable and hopefully not too expensive an educational system.
Metrics: Amount allocated to closing and tracking religions schools focusing on extreme/Taliban ideology, amount allocated to replacing such schools at a similar lower fee structure, revising school curriculum to ensure a more secular educational content….
4) Perspective from the past:
Another point the author makes about the effectiveness of budget is ‘time will tell’ – well times has been telling all along, have we been listening?
Metrics: introducing regulation that will benefit the small time farmer, business that can create local jobs, sops for small farmers and businessmen, tax on rich farmers…
June 14th, 2009 at 23:44
Does not looke like any effort to curb the non productive expenses has been made. And the productive expenses are predicated on foreign aid. What a budget. Additionally only 30 billion is spent on education and 21 on health. No wonder the nation is so educated and so healthy.
June 14th, 2009 at 21:51
This seven hundred billion plus deficit is a forcast, what will happen at the end of fiscal year is unknown, I won’t be surprised if it quadruples. let me cite here estimations for Iraq war. All expenses have gone more than three to four times than initial esimates. Are not we in the same situation? War is going on here too and first casuality of war is truth. This war is far more different, there are no oil wells to capture, no land and resources to conquer, no booty, no loot, only our own destruction and expenses.
You are right, only difference was a pretty face.
June 14th, 2009 at 20:58
The current budget, like the last years budget only favours the rich and does not show any interest for the poor people.
We need a Nehru or a General with a heart who does not surround him self with the current polititions and makes land reforms. The current polititions can never do the land reforms. In all countries there is tax on bank interest and capital gains. I was surprized to know that service sector does not pay any taxes on their income. Why not?
The value of a dollar jumped from Rs 60.00 to Rs 80.00. I expect it will go Rs 120.00 next year.