In a speech that lasted more than two hours, Finance Minister Ishaq Dar presented the annual budget for the fiscal year 2014-2015. He pulled out a list of numbers from his hat to substantiate claims of success, but in hiding the plethora of missed targets, the finance minister followed his predecessors in the recent past. While various key economic indicators do depict improvement in the economy, when one delves into the details, the fiscal situation does not seem as rosy as he paints.
The numbers
Under the Pakistan People’s Party (PPP) regime the GDP growth averaged 3.0 percent, while inflation hovered around an unprecedented 13 percent. The GDP growth this fiscal year has been around 4.0 percent – albeit missing the 4.4 percent target – while the inflation was 8.5 percent. For the coming fiscal year the government is targeting 5.1 percent GDP growth – 7.0 percent by fiscal year 2016-2017 – and is looking to keep inflation in single digits as well.
Fiscal deficit has been reduced from the previous year’s 8.8 percent to the current 5.8 percent. The target for next year is an ambitious 4.9 percent. Rs 500 billion worth of circular debt was cleared in the previous fiscal year. The Rupee’s recent performance against dollar was another highlight of Dar’s speech. As were the foreign exchange reserves that the government is planning on increasing to around $20 billion.
The Rs 3.96 trillion worth budget for the coming fiscal year is brimming with ambitious numbers.
Economy on autopilot
Former deputy chairman of the Planning Commission Dr Nadeemul Haque was apprehensive about the numbers that Dar flaunted on Tuesday, and was particularly sceptical about the role that the current government has actually played in improving the state of the economy, if there indeed has been any groundbreaking improvement at all.
“The economy is not a plane that is steered by the finance minister. It is all good coming up with numbers left, right and centre but what the masses need to be told is that what exactly has been the contribution of the government in improving the economy, if indeed there has been any tangible improvement at all,” Haque said.
[quote]"Since the Ayub era, governments have been completely devoid of economic savoir-faire"[/quote]
He highlighted the lack of economic knowhow in the government machinery as a major reason behind the fiscal struggles of the past.
“Since the Ayub era, the government has been completely devoid of any economic savoir-faire. No competent economist has been a part of the government machinery and as a result, we historically toe the IMF’s line,” he said.
Haque said numbers presented by the government do not mean a thing unless the statistics are independent.
“First of all there has not been that big a difference in the critical stats when one juxtaposes the current government with the PPP government or even the Musharraf government. Secondly, the statistics that are mustered by the government itself. The numbers have not been calculated by an independent body, and the government has not divulged the mechanism of gathering the stats. If we look at the US, where the treasury is independent and responsible for gathering the relevant data, we can figure out what kind of a model is needed for these numbers to be taken seriously. In Pakistan, the government can produce whatever stats it wants since the statisticians are the government’s own. So let’s not link everything to politics,” he added.
The former deputy chairman of the planning commission highlighted the crucial factors that have been ignored by the government in the recent budget announcement.
“The inflation numbers have been underscored, but inflation has been on a decline for the past two years. The question still remains: what exactly has the government done to contribute to the improvement in the economic numbers? What hasn’t the SRO been abolished? What hasn’t there been any deregulation? Where’s the 500 billion reserved for energy amelioration? Why is the bureaucracy enjoying all the perks that it does? Regularising these perks could result in a mammoth Rs 6 trillion in additional revenue. What is the point of increasing the tax net, when the tax is not even being spent in the right place?” Haque questioned.
A cause of concern
Dr Faisal Bari, senior adviser, Pakistan, at Open Society Foundations, associate professor of economics, LUMS, and a visiting fellow at IDEAS, says that most of the focus of the budget is on increasing withholding taxes which doesn’t really count as tax net expansion.
“Most of the increase in taxation is being sought via withholding taxes and that is not how you increase the tax net. Whether or not actual big guns come under the net would be clearer in the next month or so, after the provinces present their budgets,” Bari said.
Talking about the numbers, Bari said that even if one ignored the authenticity question, the numbers themselves are not as promising as they might seem.
“In Pakistan there are always question marks over whether or not the numbers that the finance ministry has come up with are authentic or not. But even if one does not question the authenticity, the numbers might still flatter to deceive,” he said adding that, “Some numbers are definitely better. But a 4.0 percent growth rate isn’t something to write home about. Granted it is better than the recent past, but 4.0 percent does not lead to employment generation, and hence there is no tangible poverty reduction. We need to be looking at around 6-7 percent GDP growth for there to be any employment generation and actual fiscal improvement.”
Further dissecting the numbers, Bari used the government’s stats to throw the gauntlet to the finance ministry.
“Even according to the numbers provided by Mr Dar there is only one percent improvement in growth. And the expected growth rate is predicted to be around the same number as well. One percent increase in GDP growth reflects extremely slow recovery. The recovery needs to be much quicker for actual economic results,” he said.
Bari also questioned the inflation numbers, and said that gauging inflation is a lot more than just measuring the number of digits.
“It’s not just about single or double digits. There isn’t a lot of difference in 8-9 percent and 10-11 percent to be very honest. Despite the decrease there is a conspicuous stubbornness that inflation in our country has manifested. As an economist I can say that the stubbornness is a cause of concern, and reflects that inefficiency has crept inside the system, and isn’t willing to let go,” he concluded.
The onus now is on the finance ministry to detect and purge the system of inefficiency, he added.
The numbers
Under the Pakistan People’s Party (PPP) regime the GDP growth averaged 3.0 percent, while inflation hovered around an unprecedented 13 percent. The GDP growth this fiscal year has been around 4.0 percent – albeit missing the 4.4 percent target – while the inflation was 8.5 percent. For the coming fiscal year the government is targeting 5.1 percent GDP growth – 7.0 percent by fiscal year 2016-2017 – and is looking to keep inflation in single digits as well.
Fiscal deficit has been reduced from the previous year’s 8.8 percent to the current 5.8 percent. The target for next year is an ambitious 4.9 percent. Rs 500 billion worth of circular debt was cleared in the previous fiscal year. The Rupee’s recent performance against dollar was another highlight of Dar’s speech. As were the foreign exchange reserves that the government is planning on increasing to around $20 billion.
The Rs 3.96 trillion worth budget for the coming fiscal year is brimming with ambitious numbers.
Economy on autopilot
Former deputy chairman of the Planning Commission Dr Nadeemul Haque was apprehensive about the numbers that Dar flaunted on Tuesday, and was particularly sceptical about the role that the current government has actually played in improving the state of the economy, if there indeed has been any groundbreaking improvement at all.
“The economy is not a plane that is steered by the finance minister. It is all good coming up with numbers left, right and centre but what the masses need to be told is that what exactly has been the contribution of the government in improving the economy, if indeed there has been any tangible improvement at all,” Haque said.
[quote]"Since the Ayub era, governments have been completely devoid of economic savoir-faire"[/quote]
He highlighted the lack of economic knowhow in the government machinery as a major reason behind the fiscal struggles of the past.
“Since the Ayub era, the government has been completely devoid of any economic savoir-faire. No competent economist has been a part of the government machinery and as a result, we historically toe the IMF’s line,” he said.
Haque said numbers presented by the government do not mean a thing unless the statistics are independent.
“First of all there has not been that big a difference in the critical stats when one juxtaposes the current government with the PPP government or even the Musharraf government. Secondly, the statistics that are mustered by the government itself. The numbers have not been calculated by an independent body, and the government has not divulged the mechanism of gathering the stats. If we look at the US, where the treasury is independent and responsible for gathering the relevant data, we can figure out what kind of a model is needed for these numbers to be taken seriously. In Pakistan, the government can produce whatever stats it wants since the statisticians are the government’s own. So let’s not link everything to politics,” he added.
The former deputy chairman of the planning commission highlighted the crucial factors that have been ignored by the government in the recent budget announcement.
“The inflation numbers have been underscored, but inflation has been on a decline for the past two years. The question still remains: what exactly has the government done to contribute to the improvement in the economic numbers? What hasn’t the SRO been abolished? What hasn’t there been any deregulation? Where’s the 500 billion reserved for energy amelioration? Why is the bureaucracy enjoying all the perks that it does? Regularising these perks could result in a mammoth Rs 6 trillion in additional revenue. What is the point of increasing the tax net, when the tax is not even being spent in the right place?” Haque questioned.
A cause of concern
Dr Faisal Bari, senior adviser, Pakistan, at Open Society Foundations, associate professor of economics, LUMS, and a visiting fellow at IDEAS, says that most of the focus of the budget is on increasing withholding taxes which doesn’t really count as tax net expansion.
“Most of the increase in taxation is being sought via withholding taxes and that is not how you increase the tax net. Whether or not actual big guns come under the net would be clearer in the next month or so, after the provinces present their budgets,” Bari said.
Talking about the numbers, Bari said that even if one ignored the authenticity question, the numbers themselves are not as promising as they might seem.
“In Pakistan there are always question marks over whether or not the numbers that the finance ministry has come up with are authentic or not. But even if one does not question the authenticity, the numbers might still flatter to deceive,” he said adding that, “Some numbers are definitely better. But a 4.0 percent growth rate isn’t something to write home about. Granted it is better than the recent past, but 4.0 percent does not lead to employment generation, and hence there is no tangible poverty reduction. We need to be looking at around 6-7 percent GDP growth for there to be any employment generation and actual fiscal improvement.”
Further dissecting the numbers, Bari used the government’s stats to throw the gauntlet to the finance ministry.
“Even according to the numbers provided by Mr Dar there is only one percent improvement in growth. And the expected growth rate is predicted to be around the same number as well. One percent increase in GDP growth reflects extremely slow recovery. The recovery needs to be much quicker for actual economic results,” he said.
Bari also questioned the inflation numbers, and said that gauging inflation is a lot more than just measuring the number of digits.
“It’s not just about single or double digits. There isn’t a lot of difference in 8-9 percent and 10-11 percent to be very honest. Despite the decrease there is a conspicuous stubbornness that inflation in our country has manifested. As an economist I can say that the stubbornness is a cause of concern, and reflects that inefficiency has crept inside the system, and isn’t willing to let go,” he concluded.
The onus now is on the finance ministry to detect and purge the system of inefficiency, he added.