Pakistan Budget blame-game debate

Dr Meekal Aziz Ahmed

I disagree with much of what Mr Faisal Saleh Hayat has said in his article, “Budget blame game” (June 28). However, I will address only some of his points in the interest of brevity.

Mr Hayat starts by lauding the size of the budget. Its size, he suggests, is a measure of the strength of the economy. I have no idea what this means. Each year, the economy gets bigger and bigger, even if real growth is zero, by the amount of inflation. Even if the share of the budget relative to the size of the economy remains the same, each year’s budget, in absolute terms, would be bigger than the previous year’s. What this has to do with the strength of the economy escapes me.

Mr Hayat then speaks of the strength of the revenue base and how “destroyed” economies don’t have such high growth rates in revenue collection. Is Mr Hayat talking of the same country I am because this statement leaves me completely baffled. What high growth rates in revenue collection is he referring to? Surely, he knows that the heart of the country’s ongoing and never-ending fiscal mess is due to the inability of the FBR to collect revenue which, incredibly, has not even kept pace with the growth of the economy? Surely he knows that Pakistan’s tax-to-GDP ratio–one of the lowest in the world and probably the most unfair because of the disproportionate burden it places on the fixed income groups–has been in unremitting decline over the past decade, and there is nothing to suggest, including this budget, that the trend of decline will be halted or reversed anytime soon?

Still on the tax revenue side, much is made of the fact that tax revenues are projected to go up by 25 percent in 2008-09. Disbelieving, I checked the numbers on my calculator but I was sure that my batteries were on the fritz. Even after I changed them, the same 25-percent increase in revenues emerged. This couldn’t be. Was this some kind of joke? Furthermore, it is well to note that this is only a projection and the FBR is famous for its rosy revenue projections which are never realised. Has anyone, including Mr Hayat, asked the FBR when, in the past sixty years, it collected 25 percent additional revenue in a year, and how exactly it plans to perform this magic this year?

On the question of cooking the books. Mr Hayat says that this charge is only meant to embarrass the country in the eyes of the IMF and the international financial community. Actually, the country has already been embarrassed. Immediately on taking over as finance minister, Mr Shakat Aziz wrote a letter to the IMF management confessing that the fiscal books had been cooked all along by the Nawaz Sharif government. Since Pakistan was under an IMF programme at that time and the IMF gets a little upset with countries fudging the figures they give them, following a humiliating IMF staff investigation of the cooked books with sheepish government officials, Pakistan had to return millions of dollars of IMF money as fine for data that was bogus.

But what’s a few hundred million dollars between friends. Not to worry. One solitary person in the Ministry of Finance was made a scapegoat and sent home, where he has been for the past eight years; the rest of the cookers were re-employed and promoted, and given a civil award. And with no prying IMF eyes, because the IMF programme had ended, the old and new cookers have had a veritable field day, changing base years, price deflators and commodity weights to produce, inter alia, glowing GDP growth rate figures.

A further important point. Today’s “mess” is hardly the doings of an admittedly comatose awami government which has not acted boldly enough to stem the deterioration of the economy. Mr Hayat must know that there are long lags between policy actions and outcomes. The mess we are in today (falling foreign exchange reserves, high and accelerating inflation, the rupee under pressure, etc.), is a classic case of “as you sow, so shall you reap.” In other words, the mess we see today is the ineluctable consequence of the misguided and unsustainable policies of the last eight years now being felt in full force. It was inevitable that the adverse impact of these policies would eventually feed through. The pity is the present government is reaping what they did not sow.

The writer holds a doctorate from Oxford University and has worked for the Planning Commission as well as the IMF. Email:

Source: The News, 3/7/2008

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