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Budget 2008-09
Relocating
development priorities
By M. Sharif
Budget for forthcoming fiscal year is to be
framed in quite depressing macro-economic environment and in the midst of
rising expectations by the people at large who have suffered a lot because
of high inflation and other adverse economic reasons. In such a situation,
the government is to adopt a few short, medium and long-term fiscal and
administrative measures and execute policies that have to be result
oriented for the public. In order to get the best results, it is
imperative to relocate priorities for economic growth and development that
should focus on well-being of people and strengthen economy to withstand
internal and external shocks arising because of multiple factors.
Current depressing economic environment quite
explicitly show that priorities fixed and policies pursued by the previous
government, despite achieving high economic growth and macroeconomic
stability were by and large lopsided. That is why meltdown of
macroeconomic stability during past more than six months was too quick to
be understood. Nearly all economic indicators and stocks have either
depressed or crashed. In order to retrieve the lost ground and to achieve
sustainable high economic growth and development, it is imperative that
the present government should take a good start in the first budget was to
be presented on 11th June, 2008 by relocating economic development
priorities and pursuing radically changed policies. A lukewarm effort in
this vital field of decision making might not help to give a direction
that is needed by the economy.
Priorities in retrospect and their consequences
Priorities of previous government were to achieve
first macroeconomic stability followed by high economic growth. It did a
commendable job to achieve both the objectives in two phases. Economy was
retrieved from macroeconomic instability between FYs 2000-2003 and high
economic growth of around 7.5 per cent was registered between FYs
2003-2007. The route adopted to achieve these objectives was softer than a
real hard road map that could have minimised structural imbalances that
are so conspicuous today and accelerated the process of macroeconomic
instability.
The government focused on quick macroeconomic results
whose erosion has left people and present government in lurch in a short
span of a few months. It depended upon three elements: consumer financing,
financial liquidity and fiscal space supported by remittances and liberal
financial assistance provided by the US and multilateral organisations and
liberal spending in public sector that led to expansionary fiscal policy.
GovernmentÕs fiscal policy ran contrary to the SBPÕs tight monetary
policy during past around three years. Services and financial sectors
achieved enviable high growth but growth of agriculture and LSM remained
somewhat mute and fluctuating. GDP growth showed quantum improvement as
and when growth in agriculture sector and LSM was substantial.
The govt initially tried to make some in-roads in hard
decision-making to balance economy. It took measures specific to
documenting of economy, keeping up momentum of exports, increasing number
of tax-payers and rationalising taxation system for increasing quantum of
tax revenue, synchronising monetary and fiscal policies, pursuing pro-poor
policies, strengthening supply side of economy, containing inflation,
prioritising different sectors of economy to meet requirements of a fast
developing economy. But, soon it was over powered by inertia and
complacency. It satisfied itself what it had achieved in terms of fiscal
space and economic growth. People and their economic well-being were given
less priority and were left to benefit from the trickle down effect of
high economic growth.
Another pertinent point in this respect is that the
government did not fully take cognizance of intrinsic relationship between
institutional political stability and economic growth and development
despite the bitter experience of late 60s. Consequently, signs of economic
meltdown started showing-up quite conspicuously from November, 2007.
Economy could not withstand shocks of domestic political uncertainty and
increase in prices of oil, food and other commodities. It could have
withstood external shocks in much better way, had the government laid down
right priorities for different sectors of economy and worked on minimising
structural imbalances of the economy.
Relocating development priorities
The country at present needs to execute a strategy
that gives impetus to a sustainable economic growth without depending too
much on external sector, strengthens supply side of economy particularly
of food items by enhancing domestic productivity, maintains a healthy
balance between fiscal and monetary policies, facilitates macroeconomic
stability, enables to reduce dependence on public debt and encourages good
economic governance. It is a difficult agenda in view of current global
thrust towards free market economy and reduced tariffs that hardly favour
developing economies.
Our economy is basically an agrarian economy, a fact
accepted by managers and planners of national economy but when it comes to
taking practical measures to give boost to it through modernisation of
agriculture sector, securing water supply for irrigation, value addition
of agri-products, marketing of agriculture commodities and executing
pro-farmer policies, they had second thoughts and let agriculture sector
float at its own. Consequently, the sector hardly gets the attention and
investment it deserves with the result that its share in GDP during past
five years has decreased from 25.0 per cent to 21.0 per cent. The policy
makers firmly believe that food needs of a population growing around 2.0
per cent per year can be met from abroad. It was one of the rationales of
keeping the sector starved of public and private sector investment
vis-a-vis other sectors of economy particularly the industrial sector.
Recent increase in the prices of food items in global
market suggests that era of cheap food supplies from global market is over
because of increase in oil prices, shift in the policies of surplus food
production countries in favour of producing bio-fuels, increase in prices
of farm inputs and emergence of a strong global middle class that has
kicked of consumption of quality food. Keeping in view these crucial
factors, it is imperative that agriculture sector should be given top
priority with a view to enhancing yield per acre of cash food and non-food
crops that are the lowest in the world. Highest wheat production of 8038
kg per hectare has been achieved by Britain whereas per hectare yield in
Pakistan is 2500 kg. According to expert, agricultural productivity in the
country can be improved by at least 20.0 per cent. Policy initiative needs
to be taken to ensure food security and produce surplus agricultural
products with value addition for exports. Pakistan has a lot of potential
to become food exporting country. It would fetch high price because of
increase in prices in international market. Increase in exports will
reduce trade and current account deficits and alleviate poverty.
Agri-sector is vital for economy on account of two
other reasons also. One, it is the backbone of supply of raw material to
country’s largest industry, the textile industry. It has the potential
to earn three times more forex than it earns at present. Its share in
exports is around 62 per cent. Presently it faces tough competition
because of high cost of inputs and doing business, lack of quality
according to international standard and value addition in its products. It
is to be appreciated that textile industry has been one the major
beneficiaries of government support programmes such as rebate on Rand D,
export refinancing and substantial concession on loans contracted to
establish industrial units for exports.
Two, around 70.0 per cent population living in rural
areas is dependent on agriculture sector for their livelihood in one way
or other and around 45.0 per cent of country’s workforce relies on
agriculture sector for its livelihood. Incidence of poverty must have
increased during past more than one year because of high inflation and
dislocation of economic activity because of energy crisis. Second priority
should be given to resolving energy crisis and boosting industrial sector
inclusive of agro-based industries. Emphasis should be on three factors:
producing quality products at competitive prices for domestic consumption
and enhancing exports, increasing employment and diversifying exports. For
these purposes, private sector will have to be given incentives, import
duty on raw materials will have to be reduced and human resource will have
to be developed.
The services and financial sectors have flourished
substantially during past few years and have given impetus to economic
growth through substantial foreign investment but these sectors have
inherent limitations boost exports, generate employment, strengthen
economy and correct structural imbalances that have been persisting in the
economy since long. It is time that there should be change in the strategy
pursued thus far.
Conclusion
Development of agriculture, industry and human
resource should get top priorities in the new strategy of economic growth
and development. Agriculture sector that did not get the desired attention
needs to be given first priority. Industrial sector needs diversification
and high growth to create surplus capacity for domestic consumption and
exports. A lot investment is required to be made by the private and public
sector to create state of the art infrastructure that should really make
the two sectors vibrant. The government needs to be discrete to contract
further loans because public debt is already busting limits imposed by the
Fiscal Responsibility Law. Hopefully, budget proposals will focus on
fixing right priorities for economic growth and development.
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