PPI Original Text (PPI-OT) – Budget 2012-13 is a politically-motivated traditional annual exercise

Islamabad, June 04, 2012 (PPI-OT): The budget 2012-13 is a politically-motivated traditional annual exercise which will have no positive impact on pro-poor growth and poverty reduction in the country. Experts said it during the ‘rapid assessment of budget 2012-13’ organized by Sustainable Development Policy Institute (SDPI) here on Monday.

They said 12.5 percent tax ratio to GDP, over 1 trillion budget deficit, uncertain economic growth and increasing magnitude of poverty, state’s inability to tax the powerful rule elite and not to stop allocations for them, massive mis-match in allocations and priorities, and conservatively estimated direct costs of US$ 21.2 billion of mis-governance will continue to pose sever challenges to country’s economy and sustainable future.

Dr Muhammad Islam, Acting Director, Area Study Centre, Quaid-I-Azam University Islamabad and Advisor Iqra University Islamabad said the government has adopted the approach of ‘little to each and from little from each’ under the budget. He said it is a traditional budget quite similar to previous budgets mainly for political considerations.

He said the budget is more of populist in style than to its subsistence. He was of the view the government is trying to build the social alliance both with the powerful elite and weaker sections of society.

“The budget reflects Inability of the state to tax the powerful elites such as military, feudal and agriculturists as well as not able to stop allocations for them in an effort not to antagonize them due to looming elections while it has also tried to make happy the less powerful through different strategies such BISP, untargeted subsidies and increase in the pay of salaried class” he added.

He said governance, weak indigenous revenue generation from powerful groups and poverty eradication will eventually pose serious threats not only to the regime but also to democratic system.

Safiya Aftab of Strategic and Economic Policy Research termed the budget 2012-13 a fantasy and cautioned macroeconomic imbalances in the economy are bound to get worsened substantially in near future.

She said that this year’s estimated bank borrowing are higher than the amount allocated for federal PSDP adding banks are supposed to support entrepreneurship, not bureaucracies. She also lamented over large amount of untargeted subsidies in previous year which were higher than that of expenditure on defense. “Last year energy subsidies were more than 80 percent of total subsidies and this was the first time in Pakistan’s history that WAPDA and KESC cost taxpayer almost as much as the Pakistan Army”, she added.

Dr Abid Qaiyum Suleri, Executive Director, SDPI, said it is lose-lose, not populist, budget as government was not able to introduce any concrete measure for macro-economic stability. He said reduction in taxation slab from 16 to 5, PM’s house conversion into university, one hundred thousand internships, and plan to end SRO culture are some of the positive steps in the budget.

Dr Suleri gave a detailed anaylysis of budget document about taxes through oil imports, energy allocations including critically low allocation for Diamer Basha Dam, no allocation for pending National Census, construction of petroleum house, and other critical priorities, and added that the fundamental issue is not the allocations in the PSDP but the mismatch in the allocations against the requirements.

He also urged the opposition to play a constructive role in budget discussions adding if the government is not proposing any impressive budgetary allocations, they should come up with constructive criticism and solutions to positively contribute the state in solving national affairs.

Dr Vaqar Ahmed, Research Fellow and Head, Economic Growth Unit, SDPI raised concerns over the low 12.5 percent investment ratio to GDP, varying estimates of economic growth and the magnitude of poverty and urged the budget must address economic growth, redistribution of resources and also poverty reduction objectives.

He said to revive the economic growth, the current budget reflects very little entrepreneurial aspects documented under the Framework for Economic Growth approved by National Economic Council. He said most of the assumptions for inflow of resources remain disputed and uncertain like last years mainly relying foreign receivables. He said relaxation in the incidence of tax reduction has been decided but non-tax revenue has been increased which is regressive in content while there is no reason to give SROs.

He cautioned the government for managing its administrative affairs and economy given around 30 percent allocation for debt servicing, 18 percent for defense, and rest for civil administration while very little is left for public investment for economic growth and targeted subsidies for the poor.

He said 360 billion PSDP allocation also comprises of around 96 percent of the funds meant for on-going projects already suffering from time and cost lapses. He said fiscal deficit of Rs. 1105 billion is supposed to be financed mainly through domestic banks which will lead to threaten the ad-hoc relief provided to salaried class, lesser credit for private sector and the State Bank will have to print more money while the budget is silent on any effective debt reduction strategy. Citing a recent post-budget excersise of SDPI in order to quantify the direct costs of mis-governance, he said a conservative estimate indicates such cost is around an annual US$ 21.2 billion to the country.

Hafiz M. Idrees, Income Tax Bar Association, Rawalpindi commented and Mian Ramzan, Chief Executive Officer, TMR Consulting also spoke on the occasion while Tahir Dhindsa, Editor, Economic Bulletin, SDPI moderated the proceedings.

For more information, contact:
Faisal Nadeem Gorchani
Coordinator, Policy Advocacy and Outreach
Sustainable Development Policy Institute (SDPI)
38 Embassy Road, G-6/3 Islamabad, Pakistan
Postal Code: 44000
Tel: +92-51-2278134, (Ext: 113)
Fax: +92-51-2278135
Cell: 00-92-333-559 2210
Email: main@sdpi.org