Creating much needed fiscal space

Faced with burgeoning budget and current account deficits, the Pakistan Tehreek-i-Insaf government unveiled a mini-budget in the National Assembly on Tuesday in its bid to control both of them.

Presenting new taxation measures and reliefs, finance minister Asad Umar said that the inevitability of revising income and expenditure targets had been obvious as the country’s economy was under stress. The new budget proposals seek to reduce expenditure, on the one hand, and create additional resources through some fresh taxation measures and administration, on the other.

The finance minister claimed in his speech that the burden of new measures would fall on the privileged sections of society. Yet after the depreciation of the value of the rupee, the recent increase in gas prices and adjustments in indirect taxes might take their toll.

The much talked about austerity measures will hopefully help in controlling inflation through determined and convincing efforts. The need to control unproductive expenditure and eliminate waste has been talked about for long, but actions somehow have fallen short of words.

According to the finance minister, apprehensions were that the budget deficit could shoot up to a little over seven percent, which would certainly be worrisome. The outgoing government had estimated a budget deficit of 6.6 percent. It has now been proposed to bring it down to five percent.

This will be made possible through additional resource generation of Rs183 billion. Around another Rs300 billion will be saved by keeping the development programme at Rs750 billion. The essential development schemes have been protected.

Describing the newly announced measures as “fire-fighting”, the finance minister clearly indicated that the road to economic recovery and progress is still paved with myriad problems. Besides maintaining a high rate of economic growth, accelerating investment, discouraging import of luxury goods, rapid acceleration in exports and expansion of social safety nets remain some of the formidable challenges.

Of considerable concern remains the debt burden, both domestic and foreign. Efforts will be required so that domestic debt, which is said to have risen sharply, is controlled with indomitable political will and strict financial discipline. The dependence on foreign loans will also need to be reduced.

The new export-boosting measures announced measures will be helpful, but much more needs to be done to boost exports substantially. The government has set up an Economic Advisory Council, whose collective wisdom should be of much help. It is quite often acknowledged that this sector has much potential to grow. Export expansion is clearly the surest way to reduce trade deficit. The incentives to agriculture sector are also timely.

The problems facing the economy have been perennial. How far the corrective measures taken in the past have borne fruit is quite well known. The basic flaw that comes to mind is that we have been living beyond our means. That brings forth the need to increase savings at the government, private sector and household levels.

The newly announced measures might be essential. Such structural economic reforms ought to be the sine qua non of a broad policy framework that could ensure that the economy does not run into similar problems again and again.