Meaningless budget

Pakistan’s annual budget due this month is in danger of becoming meaningless unless backed by progressive and brave policy reforms. For years, successive governments have presided over largely inconsequential budgets with few hopes for groundbreaking change.

The sanctity of budgetary commitments has been squandered repeatedly as successive regimes have announced robust development plans, only to be reversed later for tackling a stubbornly out-of-control fiscal deficit.

Over time, Pakistan’s finances have weakened under the weight of recurring fiscal deficits, out-of-control trade and current account deficits and soaring domestic and foreign debts. These regressive trends have together continued unabated without comprehensive reforms.

As Pakistan prepares to enter another IMF loan programme, the budget is set to be driven by harsh conditions imposed by the Washington-based lender. Yet, the IMF must not be held squarely responsible for heaping excessive financial pain upon Pakistan.

The reality is indeed that the stress imposed upon Pakistan’s mainstream population has been slapped due to the failure of the country’s rulers to oversee deep-rooted reforms over time. Among the most glaring contradictions surrounding Pakistan, there is just no rationale for a long-term failure to widen the country’s net of direct taxes beyond the meagre two per cent of the population already captured.

Although poverty continues to advance across Pakistan, the 98 per cent of the population who remain outside the income tax net must include many who boldly refuse to pay their dues.

Tragically for Pakistan, evading taxes remains a chronic issue, with little change likely for the foreseeable future. And repeated political failure to change this trend has driven its continuation more than a failure of economic policy. A change for the better will remain elusive unless backed by urgent reforms in four key areas.

First, a country driven by gaps in its rule of law can just not lift its economic trajectory. In Pakistan, stakeholders across the board, from politicians on the wrong side of the ruling structure to prospective investors, have seldom received a fair hearing if caught in a legal dispute. It is hardly surprising to see repeated accounts of aggrieved investors who have chosen to only opt for short-term commitments while abandoning longer-term ones with payoffs for society like the creation of jobs under far-reaching ventures.

Second, a targeting of prospective taxpayers must begin from the top tier of the decision-making structure. Any hope for a vast uplift of tax collections will be quickly lost unless a new regime tightly surrounds all who earn above a certain income level, irrespective of their clout. The continuation of de-facto exemptions will further erode the frail sanctity of the tax collection machinery – already the butt of many jokes.

At the same time, it is critical for progress in this area to be made through a path towards a more equitable targeting of taxpayers. Pakistan cannot endure a regime where some of its sectors are kept practically exempt from paying their dues, while others are targeted with excessive burden in an ill-conceived journey to balance the books.

Third, Pakistan for now is caught in a low growth trajectory as the nation of 240 million plus copes with unprecedented stress, caused by a domestic and foreign debt crisis coinciding with shrinking resources. However, an area that can partially compensate for the low growth trajectory remains agriculture, with vast potential coupled with formidable challenges.

The crisis surrounding this year’s wheat harvest is a terrible reminder of a failure by the government to manage the most vital crop. The loss to farmers from a steep fall in returns as the government failed to make its promised procurements will undoubtedly have longer-term consequences. Hugely cash-strapped wheat farmers are already short-changed and risk significantly scaling down their investments for planting their summer crops.

An emergency action plan is essential to immediately enable Pakistan’s farmers to receive a fair return for their wheat stocks. Higher dividends to farmers will take them towards higher future investments followed by higher production from their future crops. A stronger push to revive agriculture is essential to reduce Pakistan’s food dependency on imports and lift the country’s trade and current account balance.

Fourth, for over a decade Pakistan’s community of nonprofit organizations has been surrounded by tighter regulatory mechanisms that have undermined their ability to deliver the needs of some of Pakistan’s poorest of the poor. Given that the prevailing emergency is profound, it is essential to immediately remove such obstacles and fuel an impetus for the work of nonprofit outfits, as levels of poverty across Pakistan remain potentially alarming. Amid a historical economic emergency, Pakistan must dig deep to find every possible rupee to support its increasingly marginalized population.

For now, the budget must become a more meaningful exercise than another round of number-crunching, as Pakistan copes with possibly the biggest emergency in the nation’s history.

The writer is an Islamabad-based journalist who writes on political and economic affairs. He can be reached at: farhanbokhari@gmail.com