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analysis Newswatch budget The
gender dimension Hoping
against hope budget Why
is the budget important? Influencing the budget formulation process Does it really matter for an ordinary person who has no stakes in sate affairs whatsoever to understand a 'tricky' document such as the budget? Yes, it does matter because every single paisa that comes in the government kitty or leaves it has a direct impact on every citizen of the country. In a working democracy, every citizen reserves the right to question government action or, as in most cases, inaction. Injustice
at the best A
bone of contention 'Punjab
poised to gain in any case' 'NWFP
needs to be compensated for violence' 'The
federal government owes us Rs128 billion' 'The
existing NFC is unfair to Sindh'
analysis By Aasim
Sajjad Akhtar It is that time of year once again when statistics about the state of the economy abound, rhetorical commitments to the poor are made with reckless abandon and interest groups of all types lobby those in power to do them favours. Of course, the ongoing political wrangling over deposed judges and power-sharing more generally has meant that budget preparations have remained fairly muted; indeed, the major question in journalistic and political circles till quite recently was whether the judges' issue would be addressed before the budget session. This is not to say that
the economy is not a major concern at the present time. In fact, the Of course, skeptics argue that the government is not willing and/or able to provide any meaningful relief and that economic problems are so immense that the budget exercise is, in any case, a tokenism. It is no doubt a truism that the mess that the new government has inherited cannot possibly be cleaned up overnight and that genuine structural changes in the economy will take time. The power crisis offers the perfect example: it will take at least three years to make new power generation plants functional, assuming that construction work starts immediately. So discerning observers
should not censure the government for the crises that are not of its own Before his resignation from the federal cabinet, Ishaq Dar suggested that the development budget would have to be slashed to compensate for the huge fiscal deficit that the new regime has inherited. He noted that foreign debt had increased to well over $42 billion, the trade deficit had also ballooned and that there had been no meaningful improvement in revenues to offset rapidly increasing expenditures. While Dar did also hint that the defence budget could be curbed to deal with the deficit, he ultimately and predictably asserted that the development budget would be slashed before all else. A brief digression is necessary here: the development budget, or what is called the Public Sector Development Programme (PSDP) should by no means be uncritically accepted at face value. During Shaukat Aziz' tenure, PSDP allocations were almost always under-utilised and a significant majority of the funds that were put to use was spent on overhead costs that had little or no impact on the common people's lives. In any case, the PSDP is effectively shorthand for mega projects, the impacts of which are far from unambiguous. However, let us assume that development planning were to be made pro-people and various bureaucratic bottlenecks eliminated! Why then is it always expenditures to meet people's needs that are put on the chopping block to address deficit concerns in the short-run? Time and again, year after year, it has been noted that the white elephants of defence, debt-servicing and government overheads account for more than 80 percent of the expenditure. Even inflating the PSDP through artificial means has not resulted in a change in this basic pattern, and there can be no doubt that the budget will remain a truly token exercise until and unless the parties in power are willing to make a break with this pattern. The other side of the equation, of course, is revenue generation. If on the one hand, more than 80 percent of the expenditure is virtually fixed; then, on the other hand, the state's inability to raise revenue is just as problematic. The state's primary source of revenue is taxes. In most countries of the world income, tax constitutes the major chunk of tax revenue. In Pakistan, hardly one percent of the population pays income tax. This means that our taxation system is one of the most regressive in the world, with low-income households paying a much greater percentage of their income in taxes as compared with high-income households. Again this is simply a matter of political will, because until and unless government decides to take on those who consistently fail to contribute to the public good, there can be no question of relief to the common people. There, of course, is another major consideration in the budget exercise and in the operation of the economy more generally. This has to do with the overarching role of the international financial institutions (IFIs) in economic decision-making. Most of us recall Shaukat Aziz claiming the Pakistan had broken the begging bowl and taken a big step towards self-sufficiency by deciding not to continue taking loans from the International Monetary Fund (IMF). As pointed out above, this was plain and simple fabrication, and Pakistan is now much worse off than it was when Shaukat Aziz took the reins of the economy. What this means is that the IFI continue to play a larger-than-life role in directing Pakistan's economic policies. Since 1988, the IFIs have moved Pakistan closer to the model third world economy that they have fashioned in many a Latin American, Asian and African country. Of course, these institutions have been dictating policy since the 1950s, but the devastating shift towards unbridled trade and financial liberalisation has taken place primarily over the past 20 years. The shadow of the IFIs has hung over every budget in this period, most obviously in the massive allocations to debt-servicing but more generally in the overall logic of allocations. So for instance, as has been a major issue in the news recently, the World Bank has been demanding a slashing of oil subsidies, as it has done with food subsidies in previous budgets. The logic at work is that state subsidies impede the free operation of the market and it is only when the market is allowed to operate freely that the 'structural distortions' in the economy can be corrected. Unsurprisingly, the government has responded favourably to the World Bank's demand, as it is likely to do in the future as well. There is no debate, whether within parliament or outside of it, about the manner in which the World Bank and its sister institutions influence policy frameworks. In fact, it is almost taken for granted that the sitting government will toe the IFI line because of the tremendous power that these institutions wield. But then, the real question -- as it is during the budget session every year -- is by whom and for whom economic policy is made. If a handful of career bureaucrats in Islamabad and technocrats in Washington are the only meaningful 'stakeholders' -- to use a very World Bank kind of term -- what exactly is the point of pretending that the budget or policy more generally is conceived by the parliament and for the people?
Newswatch Concerning the fine art of creative budget accounting By Kaleem Omar Converting a budget deficit into a budget where the two sides -- projected revenue and projected expenditure -- look equal, at least on paper, is known in Islamabad's bureaucratic circles as the fine art of 'creative' accounting. Extending this doctrine a little further yields the proposition that the bigger the budget deficit, the more creative the accounting. That is why we're likely to see some very creative accounting at work in the forthcoming budget for fiscal 2008-09, which, by all accounts, seems headed for the biggest-ever deficit in Pakistan's history. In recent weeks, we have been told by the present government that the Public Sector Development Programme for the current fiscal year has had to be drastically slashed due to the inefficient implementation of various government schemes. Neither the previous government nor the present government is likely to take any credit for this cut, on the theory that while success has many fathers, failure is an orphan. Then, of course, there is the 'empty-treasury' syndrome. Every incoming government says it has inherited an empty treasury from its predecessor. The present government is no exception. Indeed, the empty-treasury drumbeat has now reached crescendo proportions. To hear the present government tell it, the empty treasury has never been emptier than it is these days. The empty-treasury syndrome notwithstanding, listening to the optimistic pronouncements contained in a typical budget speech by the finance minister of any government of the day, however, ordinary Pakistanis could be forgiven for thinking that everything has suddenly become hunky dory and the economy, instead of plunging even deeper into the pits, is now going great guns. Former finance minister Shaukat Aziz (who retained the finance portfolio even after becoming prime minister) was a master at making such pronouncements. Every time he opened his mouth, Pakistan's per capita GDP suddenly went up by another 100 or 200 dollars a year. That was how we managed to leapfrog from an annual per capita GDP of $450 to a figure of over $1,000 a year within the space of a few short years. This was creative accounting par excellence. Another example of creative accounting was the previous government's oft-repeated claim that it had "broken the begging bowl" and no longer had to depend on the International Monetary Fund (IMF) for budgetary support. If that was the case, however, how is it that Pakistan's foreign debt has gone up from $36 billion in 1999 to more than $47 billion today? 'Shortcut' Aziz (as some commentators had nicknamed him) has now disappeared from the scene and is said to be busy writing his memoirs in London. Rumour has it that one suggested title for the book is Out of the Line of Fire. Aziz' successor as finance minister was the PML-N's Ishaq Dar. But he had hardly been in the job for a couple of weeks when he had to resign, because of his party's decision to withdraw all its ministers from the coalition cabinet headed by Prime Minister Yousaf Raza Gilani. It is said that Gilani, being a person of a spiritual bent of mind, is relying on divine help to see Pakistan through its present economic difficulties, including high food prices, chronic electricity shortages, rapidly eroding foreign exchange reserves (which have fallen by $4.5 billion to $12.5 billion in less than a year) and an ever-growing trade deficit (which, fuelled by soaring imported oil prices and a stagnating level of exports of $17 billion a year, is currently running at about $1.6 billion a month or more $19 billion a year). But while Gilani's approach to the problems of the economy could be said to be a bit like that of a kind person dispensing benign blessings, the man directly in the economic firing line, as it were, is the coalition government's new finance minister, the PPP's Naveed Qamar. On him has fallen the unenviable task of making some kind of sense out of a sea of budgetary red ink, aided and abetted, of course, by the boffins at the Ministry of Finance. They are the ones who are burning the midnight oil these days trying to make 2 billion plus 2 billion look like 22 billion on the projected revenue side and 22 billion look like 2.2 billion on the expenditure side. All one can do is to wish them the best of luck as they struggle to turn red ink into black. This is not to say that this latest exercise in creative accounting is going to end up looking any different from previous such exercises. Eventually, the truth will all come out. That's when the nation -- the long-suffering public -- is likely to discover yet again that it has been taken for a king-sized ride, just as it has been on numerous occasions in the past. Until a few years ago, the government of the day used to wait for three or four months after the announcement of the budget for a given fiscal year before resorting to what was euphemistically known as a 'mini budget', to make up the shortfall between actual expenditure and actual revenue. Such mini budgets involved increasing electricity and gas tariffs, raising the prices of POL products and upping the levying of other imposts to generate additional revenue. No more, however. Nowadays, governments tend to resort to the device of mini budgets just before the budget for a given fiscal year is announced. They can then claim that the budget deficit is lower than people had expected. Another rather neat trick is to transfer certain expenditure items from one head of accounts to another. A classic example of this was seen a few years ago when an amount of some Rs16 billion in pensions paid to retired military personnel was transferred from the defence budget to the civilian budget, enabling the government of the day to claim that defence spending had in fact been 'reduced'. Of course, nobody was taken in by this bit of accounting legerdemain, but what the heck! In for a penny, in for a pound seems to be the motto our budget-makers live by. That's another way of saying that there comes a time in a man's life when he must rise above principle. Happy budget, everybody!
Anyone for equity? By Zubair Faisal Abbasi Despite the claim
of the previous government of reduction in rural poverty at the time of According to the Budget 2007-08, ending June 30, about 12,700,000 people have come out of the poverty trap in the last five years, while 23.9 percent of the population still lives below the poverty line (BPL). To reduce poverty further, the government allocated Rs520 billion under the Public Sector Development Programme (PSDP), of which 52 percent were to be spent on infrastructure development, and the remaining on the welfare of people and the social sector. The PSDP allocation was termed historic because of its huge size. However, it has now been cut down by at least Rs40 billion because of the growing fiscal and current account deficits. In the Federal Budget 2007-08, along with budgetary allocations, a number of support initiatives -- such as farmers' markets to establish fair prices through direct consumer-producer linkages, 25 percent subsidy on electricity charges for tube-wells and ban on the export of wheat -- were identified to help the agriculture sector. Subsequently, however, there have been food shortages resulting in inflationary pressure on the economy. According to the government's own figures, food inflation -- which was about 11 percent in March 2007 -- is currently around 21 percent, while the gap between the supply and demand of electricity has reached 4,500 megawatts. Despite the average annual gross domestic product (GDP) growth rate of more than six percent and increase in per capita income in the last few years, Pakistan's economy needs a new vision. The forthcoming federal budget, slated to be announced on June 7, has to be based on this new vision if it is to ensure both high economic growth and equitable development. This new vision is needed not only because Pakistan currently is in an economic mess, but also because we need to understand why the country's economy does not sustain itself at a high level of growth and grow equitably over a longer period of time. Growing domestic demand -- because of increase in per capita income -- and shortage of local supply are being cited as the major factors behind the current food inflation in Pakistan. It is being increasingly argued, however, that there is a need to re-envision policy designs, interventions and, most importantly, the role of the state in forecasting and managing food shortages. Pakistan has been the third largest recipient of official development assistance from the developed world between 1960 and 1998, after India and Egypt. In addition, the country maintained an average annual per capita growth rate of 2.2 percent between 1950 and 1999. Despite this, social backwardness is evident in all parts of the country. For instance, the country's social indicators, such as infant mortality and female enrolment rates, are still much below globally accepted levels. The current state of Pakistan's economy was predicted much earlier by farsighted economists and policy analysts, who argued that economic growth alone was not enough for equitable socio-economic development and well-being of the people had to be an active concern of the state. It also confirms assumptions of those economists and policy analysts who argued against liberalisation and free market policies, initiated under structural adjustment programmes (SAPs). In short, the argument of 'getting prices right' seems to have been questioned seriously with the current high food inflation and rampant food shortages. The argument that getting prices right sometimes enriches wrong people, and diverts scarce resources to socially inefficient and wrong channels appears to hold ground. In fact, the stance of those who advocated targeted support in agro-industrial production mechanisms, investment in human resource development and competitiveness, and designing of growth strategies with both equity and efficiency in mind seem to have gained prominence. There is also an urgent need for revising the policy of giving subsidies in the budget. If any subsidy has to be given, it has to be targeted, such as food and energy for the poor. At the same time, subsidies should be based on performance and be reciprocal when given to the business sector for research and development for export competitiveness. The examples of South Korea, Japan and Taiwan are worth following in this regard. The East Asian experience tells us that the government has the central role in economic development. Similarly, in Pakistan, it is important to maintain a balance between the market forces (for example, factors that led to high concentration of investment in the sectors of telecommunications, oil and gas, etc) and pro-poor government interventions (for example, much needed strategic shifts in agricultural and industrial production systems). Unfortunately, Pakistan's economic managers have historically followed policy choices prescribed by the international financial institutions (IFIs) and tried to create hindrances in the way of the state playing its primary role of guiding the market forces. The state in Pakistan, primarily, has been made subservient to the IFIs and becomes active only at the time of 'market failure'. The current food shortages, fast dwindling real incomes of the poor, and the increasing gap between the rich and the poor offer a clear case of market failure in Pakistan. The government, therefore, urgently needs to play its central role in adjusting the market forces and commodity prices, according to the needs of the people. The role of the state has to be re-envisioned to implement social policy frameworks following which the federal budget should be drafted. In fact, social policy frameworks are designed to improve material welfare of most citizens through economic development. This calls for going beyond the 'safety net' approach; and adopting an economic model based on the principles of equity, productivity, sustainability and empowerment. In short, it is high time to move on and ensure social efficiency that sustains economic growth for a longer period of time. One good example can be the state's intervention in the housing sector in Singapore. This move generated dynamism in the construction industry and created new jobs. At the same time, the low-cost of housing helped Singapore to maintain low wages to attract both cost-reducing and efficiency-seeking foreign direct investment (FDI). The latter was actually the real gain of intervention in the housing sector. To conclude, it suffices to say that if Pakistan does not change its meta-framework for policy formulation, the budget will continue to have the rhetoric of being pro-poor and people-friendly, but without delivering much at the end of the financial year. (Email: abbasi.zubair@gmail.com)
The
national budget is supposed to reduce the disparity between the male and
female population of the country By Ambreen Saadat It is said that
economic development automatically reduces gender disparities. This,
however, has That poverty is pervasive is an irrefutable truth, but it can be proved that it impacts women to a greater extent than men. Statistics, such as the Gender Related Development Index (GDI) and the Gender Employment Index (GEM), cited in the UNDP's National Human Development Report 2007-2008 endorse this. Pakistan's GDI, which indicates the level of gender inequalities, was ranked at 151 out of 153 countries. Similarly, the country's GEM -- which reflects the political, technical, professional and economic opportunities available to women -- was ranked at 82 out of 93 countries. Research has proved that narrowing the differences between men and women leads to economic development, which in turn reduces poverty. Substantial gender disparities manifest in Pakistan are symptomatic of a flawed social and economic structure. The entire economic matrix will have to be overhauled to purge it of such inequalities. For this to transpire, gender differences ought to be incorporated into the economic analysis and outcomes of public policies be assessed for impact on gender. Most importantly, fiscal policies and the national budget have to be formulated with a gender consideration. On the face of it, budgets are gender- or class-neutral policy instrument, because it deals with financial aggregates, such as expenditures and revenues. But budgets appear to be gender-neutral only because they are prepared following a gender-blind approach. It needs to be remembered that government expenditures and revenues have variable effects on men and women, since both occupy different social and economic positions. The interaction between gender and budgets can be demonstrated by the fact that governments which concentrate spending in policies for enhancing women's employment achieve high growth rates. When women earn, they use their income to promote their children's education. Education increases productivity, which in turn leads to growth. Or, for instance, if a government slashes spending on clean water, women are more affected than men, because they have to bear the physical burden of providing water to households. Research has established that whenever governments have eliminated food subsidies, girls and women have borne the brunt of the resulting food deficit. Researchers have cited higher levels of malnutrition among girls and low weights of babies born to low-income mothers in this regard. To avoid the disparities caused by gender-blind budgets, policy-makers have proposed that gender dimensions should be embodied in the budgetary paradigm. In other words, gender responsive budgeting (GRB) should become the norm. GRB should not be mistaken for being an 'add-on budget for women' or a policy that exacerbates deficits by allocating funds for gender issues. On the contrary, it assesses whether the government's distribution of scarce resources is equitable and optimal, so that the objective of gender equality is met. It ensures that budgets are aligned with policies and address the gender mainstreaming issue. The concept of GRB was initially introduced in Australia in 1984. South Africa used GRB in 1995 to eliminate gender inequalities that were a by-product of the apartheid. GRB has come a long way since then and currently about 60 countries have adopted it. In Pakistan, proposals for GRB were put across several times and the Ministry of Women Development demanded its introduction in a paper submitted for the Poverty Reduction Growth Facility (PRGF) in 2001. However, the first concrete step in this connection was taken with the inception of the Gender Responsive Budgeting Initiative (GRBI) in 2005. The GRBI is a pilot project launched by the government in collaboration with the UNDP and other donor agencies, including the World Bank and the Asian Development Bank. The GRBI focuses on the federal and Punjab budgets in the sectors of education, health and population welfare. It had to start from the scratch, because GRB was a new concept and there was no blueprint that could be adopted wholesale. Under the project, extensive studies were undertaken and field surveys conducted to comprehend the impact of government policies on the gender situation. It helped the Ministry of Finance and the Punjab Finance Department to prepare Gender Budget Statements (GBS), a document that specifies the planned projects and funds allocated for the current and next financial years. Further, it allows parliamentarians to see gender in the budget and to analyse budgetary allocations from a gender perspective. The GBS is being presented with the budget for the last two years. The GRBI's most notable achievement has been gender sensitising of the budgetary process. For the past few years, Pakistan has been moving towards a Medium-Term Budgetary Framework (MTBF), which aligns budgets with policies over a three-year period. The GRBI proposed minor changes to the MTBF format. As a result, budget call circulars now require ministries and departments to mention gender while discussing their goals and activities. GRB can now be considered institutionalised, as it has been incorporated into the budgetary process. However, the GBS being presented with the budget for the last two years were not without flaws. A major limitation was that only a few categories of spending had a pro-women component or were gender-specific in nature. Obviously, some categories of expenditure -- such as defence spending or debt servicing -- cannot be classified as pro-men or pro-women, but sectors such as livestock, agriculture, water and power that have definite gender dimensions were not dissegregated either. According to actual expenditure figures of the Federal Budget 2006-07, only five percent of the development and one percent of the current budget could be classified as gender-specific. An analysis of the gender patterns in employment in the public sector reveals that women had a unemployment rate of 9.6 percent against 6.7 percent for men. The persistence of such glaring disparities requires the review of budgetary allocations. The concept of GRB can be promoted in the country if the government partners with NGOs and academic institutions, and conducts more research on the issue. Currently only budget spending is being evaluated for gender effects. A more comprehensive analysis is possible if the gender impact of tax policies is also determined. Until now the government has relied heavily on foreign experts, though it would be wise to draw on the expertise of local experts. The fact that women have begun to figure in the budget debate is a reason to cheer. But the ultimate success of GRB should not only be gauged in terms of changes in the budget and its priorities. Rather, it should be determined by the extent to which women have started to participate in budget debates and decision-making.
The common people await the forthcoming federal budget anticipating
instant relief By Dr Noman Ahmed Recent international and national events in the economic sphere have severely affected the lives of common people in Pakistan. Oil price hike, food shortages and high inflation have made bare survival an extremely challenging proposition for more than one-thirds of the country's population. No sane political dispensation can ignore the gravity of the situation, which demands instant relief measures for the poor. Budget-making, no doubt, has many technical pre-requisites that have to be fulfilled, but urgency of the situation demands several programme instruments to provide support to the poor. In short, instruments of speedy distributive justice must be created and made operational on war footings. The research work by
several government departments, research institutions, independent After using this available resource, the government should come up with short- and medium-term programmes. At the short-term level, the government may start a micro-credit programme for asset-building and sustenance. This may include credit for livestock (especially milk animals) and threshold investment in land improvement. It is common observation that milk animals are an excellent source of subsistence, and can help elevate economic status of the landless poor. The calorie-intake level also improves substantially as a result. Besides, cows and buffaloes can be managed by women, who form the poorest segment of the society. Many worthwhile examples and experiences are already available with micro-credit institutions, such as the Orangi Charitable Trust (OCT), the national and provincial Rural Support Programmes, Kashf Foundation, etc. The Pakistan Poverty Alleviation Fund (PPAF) may also be taken onboard to benefit from its outreach and liaison with local organisations. For increasing the impact of this approach, the banking sector may be encouraged to support this social agenda. It may be noted that due to diversity in socio-economic, physical and locational factors, such programmes should be flexible from the planning to implementation stage. It is now universally acknowledged that rural infrastructure is a key factor in combatting poverty. It requires innovative rural works' programmes with proper management and design features. For instance, water loss management is an important issue. The government may consider a 'Work for Food Programme' to extend subsistence to the poor labour force, with improved infrastructure as the end product. Water course improvement at the tertiary and secondary level, construction of rural water supply schemes, and source consolidation works are a few examples in this connection. By using the poor labour force, the government will be able to extend the benefits of employment, with added advantage of skill development through such programmes. The least developed areas of the country, for example, are some locations where such works' programmes can bring about very positive results. Such projects should especially be initiated in the Federally Administered Tribal Areas (Fata). The participation of local government institutions and community groups must be made an integral part of such programmes to ensure effectiveness of this approach. The World Bank has predicted that the global food crisis is likely to continue for three years. Pakistan has been marked as one of the countries that can experience the risk of food shortage. The government, therefore, must adopt immediate measures to avert such circumstances by intelligent budgetary allocations in this direction on a continuous basis. In the development outlay, apportionment of funds is needed to increase the acreage for cultivation. There are many basic lacunae that need to be addressed. In many districts in Punjab and Sindh, land tenure status poses a problem due to which the credit worthiness of small-scale landowners is negatively affected. Considering this, priority must be assigned to improving the documentation status of the lands where disputes remain unresolved. The next population and housing census is scheduled for October, and the assistance of enumerators may be sought to streamline the land records. This work requires proper planning and firm commitment on part of the government for at least three years. A high priority must be assigned to this sub-sector, because this will also help in arresting food shortages. Work on some projects that are already underway needs to be accelerated. According to the Water and Power Development Authority (Wapda), Rainee Canal Project alone can bring 412,400 acres of land under cultivation. The work on the project -- which has slowed due to resource crunch ñ needs both budgetary and policy support. Landowners may be extended a tangible relief package for bringing idle land parcels under cultivation. It must be kept in mind that by motivating the private owner to invest in land, the menace of food shortages can be effectively tackled. Pakistan is currently faced with the energy crisis also and the demand for energy shall increase in the years to come. On the other hand, prices of conventional fuels have registered an exponential rise in the recent past and this trend is likely to persist for at least some time to come. Therefore, innovative means should be employed to deal with the energy crisis, especially in peri-urban and rural areas. The government must allocate support to install bio-gas units, which have a huge potential to generate electricity and fertiliser from animal waste. Pakistan has more than 80 million cattle heads in its territory; therefore, by investing our resources in knowledge-driven solutions, positive change can be brought about for a huge number of people. The Federal Budget 2008-09 must act to regulate various negative trends that have affected the developmental balance. For instance, the overstretching of urban boundaries of large- and medium-sized cities is a matter of concern. Valuable agricultural land is lost to the spurious housing societies that lure up market clientele into speculation. Lahore, Faisalabad and Rawalpindi are the major examples in this regard. Hinterland of cities always acted as the food belt for the survival and sustenance of urban dwellers. Reduction of food producing acreage, therefore, is a dangerous trend that needs to be checked. Zoning regulations by urban development authorities and revised rates of property taxation are some of the measures that can put a check on this practice. City fringe surveys may be done to establish the outer boundaries and land reserves for non-constructible uses.
The preparation of
federal budget 2008-09 is in its final stages. A budget generally refers
to a But first things first: why do every budget results in price-hike in Pakistan? In order to answer this question, it is important to understand how governments stabilise the prices of essential items -- by providing subsidies on commodities, such as wheat; reducing tariffs and taxes; and ensuring consistent supply through market interventions. The government requires fiscal surplus to provide subsides. It also has to compromise on revenue inflow by reducing tariffs and taxes, something that again requires a fiscal cushion. In short, without fiscal surplus, the government cannot stop price-hike even if has the political will to do so. As the budget formulation has never been a participatory, consultative process in Pakistan, the pre-budget presentation period is full of uncertainties, leading to panic purchase and hoarding. This creates an acute imbalance between demand and supply, resulting in price-hike. Another important reason for price-hike after the presentation of budget is the indirect effect of new taxes and reduced support for some sectors. This, in turn, may increase the cost of production of essential commodities. In a nutshell, the government can only produce a people-friendly budget if it has the fiscal cushion to ensure the supply of essential commodities at fair prices. Because our successive governments lacked this cushion, budget and price-hike have become synonym with each other. Delivering the budget speech last year, then-Minister of State for Finance Omar Ayub said: "Our opponents are afraid that the seeds of prosperity that we have sown will bear fruit; but the nation is destined to develop and prosper." One was expecting that eight years of consistent economic policies and an average annual gross domestic product (GDP) growth rate of seven percent in the last five years would enable the government to provide some relief to the masses, but this was not to be the case. The country's economic deficit and fiscal gap are so huge that one is shocked by the claims of the previous government about having turned Pakistan into the fastest growing economy in Asia. The fiscal, current account, trade and balance of payment deficits have made it extremely difficult for the new government to provide any meaningful relief to the people of Pakistan. The government is all set not to meet the revenue target of Rs902.2 billion. According to the most recent estimates, the total federal revenue for fiscal year 2007-08 will be about Rs890 billion (only Rs 12.2 billion less than the original target). This does not seem too bad an achievement if we ignore the expenditure side of the budget. The total expenditure in the current financial year is expected to exceed the estimate of Rs1.3528 trillion by Rs522.1 billion, thus bringing the fiscal deficit to Rs534.3 billion. The current expenditure in the budget comprises four 'Ds': debt repayment, defence, day-to-day affairs and development. Unfortunately, the overspending is limited to the first three 'Ds' only -- 33.3 per cent in debt repayment, 27.27 percent in defence and 93.63 percent in day-to-day affairs. Obviously, the brunt of this deficit has been borne by the development expenditure. It is a pity that whatever was allocated for development in the Federal Budget 2007-08 will not be spent fully, because of the lack of political will and absorption capacity. According to some reports, 45 percent of allocated resources for environment, 65 percent of allocated resources for education and 51 percent of allocated resources for health will be surrendered as unspent. Interestingly, the previous government kept on incurring expenditure at the cost of development and through lavish domestic borrowing. Most of these unadjusted expenses pertain to powerful interest groups in our country. For example, there was no allocation for research and development subsidy for the textile sector in the original budget document. However, the government has already spent Rs19.4 billion on this by February and is projected to spend Rs43 billion in all in the current financial year. Subsidy on the import of wheat is another head under which the previous government had not allocated anything, but it is now projected that Rs44.9 billion will be spent on this by June 2008. Who created this situation in which we had to export wheat below then international market price and then import it at double the price is an open secret. The projected expense of Rs25 billion as supplementary grants is another example of an unadjusted budget item. The most important unadjusted budget item is Rs75 billion that are projected to be spent on Armed Forces Development Programme in the current financial year. The previous government procured Swedish military technology and JF-17 Thunder aircraft from China, thus raising the defence expenditures by 27 percent. Coming to imports and exports, against an export target of $18.92 billion for fiscal year 2007-08, the projected exports are $18.6 billion. However, the worrying part is that against an import target of $33 billion, we would be importing items worth more than $38 billion by June 2008. This would result in a trade deficit of almost $20 billion, taking our total current account deficit to 9.2 percent against the estimated target of 5.9 percent. The current situation is that our total gross reserves of $12 billion are barely sufficient to cater to three months of imports. To curtail the current account deficit, the current government had to increase the price of diesel / petrol by 17 percent and the power tariff by nine percent. It also received a Saudi grant of oil worth Rs18 billion. However, this amount is insufficient to meet the deficit of Rs534.3 billion. Thus, the government had to rely heavily on borrowing. The external borrowing is projected to increase by 24 percent, from the estimated Rs193 billion to Rs241 billion. More importantly, borrowing from the State Bank of Pakistan is projected to increase by 444 percent, from the estimated Rs81 billion to Rs441 billion. This has resulted in double digit inflation, huge domestic and external debts, and liabilities touching $43 billion. I wonder how well Naveed Qamar's team will do, considering the current fiscal crisis. Since the PPP-led coalition government has assumed power, we have been reminded time and again by various circles that the people should be ready to face harsh economic realities. This reminds me of Omar Ayub's budget speech last year in which he said: "Our priorities include transferring benefits of growth to people, promotion of people's welfare programmes, and providing education, health, justice, sewerage, gender equality and safe drinking water." Unfortunately, none of this ever happened. Considering this, all I want to request from Naveed Qamar is to reduce the trust deficit prevailing among the ruling class and the common people, by not making false promises to the nation in his budget speech. (The writer is executive director of the Sustainable Development Policy Institute. Email: suleri@sdpi.org)
The annual national budget, in a narrow sense, provides forecasts of a country's revenue and expenditure in a given fiscal year. But, at the same time, it reflects various dimensions of national economic and non-economic policies, as well as serves as an instrument of economic restructuring, growth and stabilisation in the long-term perspective. The budget spells out the significant elements of fiscal and monetary policies to achieve the national economic growth and income redistribution objectives. Once approved by the legislature, the budget authorises the government to raise revenue, incur debt and effect expenditure for achieving its goals. Since the budget determines the origin and application of public financial resources, it plays a central role in the process of government by fulfilling economic, political, social, legal and administrative functions. The annual national budget has an essential role in the planning and control of the economic activities of a country. The following three important objectives of economic policy are accomplished through it: 1. Allocation of resources: This relates to the provision of public goods and services by the government. All the goods and services in a country are produced either by the government; the formal and informal market sectors or the not-for-profit community; and unpaid household sectors. In allocating resources, the government must decide the relative size of both public service and non-public service provisions, as well as how available resources are to be divided among various government functions, policies and programmes. 2. Distribution of income and wealth: This refers to the use of budgetary policy to try to redress inequalities in income and wealth distribution. The government must make decisions about what constitutes a fair distribution among different groups of people. Accordingly, it should redistribute income and wealth from the rich to the poor (through welfare or the form of economic growth promoted); from the middle-aged to the older (via the payment of pensions); from highly developed to less developed regions (through subsidies and grants of various kinds); and from males to females (through shifting the burden of unpaid care work). 3. Stabilisation of the economy: The annual national budgets are used to promote a certain level of employment, stability in prices, economic growth, environmental sustainability and external balance. Stabilisation policy requires economic, political and social judgments in determining, say, which objective has priority at any one time or what are acceptable levels of unemployment, debt, interest rates, etc. -- Mustafa Nazir Ahmad
Influencing the budget formulation process Does it really matter for an ordinary person who has no stakes in sate affairs whatsoever to understand a 'tricky' document such as the budget? Yes, it does matter because every single paisa that comes in the government kitty or leaves it has a direct impact on every citizen of the country. In a working democracy, every citizen reserves the right to question government action or, as in most cases, inaction. Experience tells us that established democracies are more transparent as well as more accountable to their citizens. Hence people living under established democratic orders play a far more important role in the budget-formulation process through individual as well as organised institutional efforts than those living under undemocratic or authoritarian regimes. Even legislators have no role to play during the preparation of the budget in the countries falling under the latter category, except for endorsing or rejecting it based on their affiliation. Pakistan offers a classic example in this regard, as budget making has always been done by the executive and even legislators, what to speak of ordinary people, are not allowed to interfere. Following the tradition of British-style parliamentary democracy, passage of the budget in the National Assembly is considered to be of utmost importance for the government in Pakistan. It is more like a vote of confidence -- the government has to either resign or seek a new vote of confidence if it fails to get the whole of the budget approved in the National Assembly. Importantly, the legislators are only allowed to 'discuss' the development budget and the charged expenditure does not fall under their purview. Their powers to amend the development budget are also restricted, to say the least. If a cut motion in the development budget is approved by the house, only one rupee is deducted from the actual allocation as a token amount. This means that, for all practical purposes, the legislature has no powers to influence the budget in any way. One may wonder what then is the use of convening the budget session! Any attempt at budget analysis with a view to advocating a certain change in it must take into account three factors. First, the budget extends beyond the presentation or legislative phase. Normally, all the media hype about the budget is reserved for this phase though the formulation phase that precedes it is more important from the point of view of effecting any change. Two, budget analysis in most cases is confined to a review of the expenditure side only. Analysing how the government generates its resources is equally important, because all citizens of the country are directly affected by it. For instance, increase in sales tax affects the poor adversely. Third, the budget cannot be analysed in isolation, without considering both internal and external factors. Budgets ultimately determine policy outcomes. They show who benefits from public spending and who is bypassed; where the money is allocated and where it is not. Budget analysis can be a pivot to focus on local, national and international issues. However, macro-economic policy that directs the budget's formulation is barely debated and rarely challenged in Pakistan. Argumentation does occur, but only over slices of specific items. For all practical purposes, the people -- even those who are most active politically -- are left out of budget policy deliberations. To create space for public argument, organised advocates around the world have begun to analyse their national and local budgets. Their work includes summarising official information that is readily available and sharing it with other people to be used in their efforts. These advocates are using budget analysis to amplify the voices of people who are not heard; raise issues that would otherwise be neglected, and draw the attention of the media and others in civil society; confront unequal power dynamics that affect the distribution of public services; pressurise governance institutions to treat marginalised people with dignity; create new public spaces for people's participation; learn how the decision-making system works and how to make interventions in it; connect micro-level experiences to macro-level economic and social policies; and gain the skills needed to effectively participate in public argument on various policy issues. -- MNA
Islamabad's
monopoly over taxes is a perpetual source of disharmony between the Centre
and the federating units By Huzaima Bukhari and Dr Ikramul Haq Successive
governments in Pakistan, both military and civilian, have failed to end
injustices in It is an undeniable fact that Islamabad has always usurped the right of the provinces by levying sales tax and other duties at federal level on goods and services that fall within provincial jurisdiction. In all major federations, like the United States, Canada and India, the federating units have the exclusive right to levy indirect taxes on goods and services generated within their geographical boundaries. In Pakistan, the federal government has vehemently denied this right to all the four provinces. Adding insult to injury, the federal government is collecting huge amount of taxes through provincial government departments, treating them as withholding tax agents without paying any service charges as envisaged in Article 149 of the 1973 Constitution. On the other hand, it charges two percent fee from the provinces while collecting sales tax on services on their behalf! Surprisingly, no provincial government has ever contested this dichotomy. Federal high-handedness in tax matters (using both the Federal and Concurrent List) has played havoc with the financial and economic rights of provinces. They should have the exclusive right to levy taxes on goods and services within their respective physical boundaries, but the federal government blatantly encroaches upon their undisputed right by levying tax on goods and services under the garb of presumptive taxes on income. Such taxes cannot be termed taxes on income (which the federal government is empowered to levy under item 47 of the Federal List), but on goods and services. It is a great tragedy that this argument was not presented in the Supreme Court when the constitutionality of such provisions was challenged in 1991 and the debate merely revolved around academic discussions over the concept of income. If the federal government can treat taxes on goods and services as taxes on income, as held by the apex court in Elahi Cotton case PLD 1997 SC 582, then what about the division of fiscal powers as enshrined in the 1973 Constitution? Our tragedy is that, on the one hand, we have too many taxes in the country (federal, provincial and local, though the last two generate only negligible revenue); while, on the other hand, the benefits of revenue collection are not reaching the poor, especially in the less privileged provinces. The only real beneficiaries of revenue collection, thus, are the few rich in the country. The fiscal gap is increasing every year despite the five-year Tax Administration Reform Programme, initiated in 2002 with borrowed funds of $100 million. The prime reason for the failure to stall ever-increasing fiscal deficit is that provinces have not been empowered to generate their own resources. They have been denied fiscal autonomy of levying taxes on goods and services. Since 1947, our rulers in the Centre have been treating the provinces in the same way as did the British imperialists. In fiscal year 2006-2007, the total federal tax revenue amounted to Rs843 billion. The federal government showed total receipts (including both tax and non-tax) of Rs1.087 trillion, out of which the provinces received only Rs437 billion. Interestingly, the federal expenditure under only two heads -- defence expenditure and debt-serving -- was Rs 515 billion. The overall deficit was Rs 373 billion. On becoming finance minister for the first time (second time, he was prime minister-cum-finance minister), Shaukat Aziz claimed that the Centre would retain only three taxes -- income tax, customs duty and sales tax. He, however, never informed the nation that in all other federations of the world, sales tax is a provincial or local levy. Keeping sales tax with the Centre is the worst example of federal high-handedness. The provinces are the victims of double jeopardy: first, they are denied their right of levying sales tax; and second, they never get due share from the total federal collection as per the National Finance Commission (NFC) Award. The failure of the federal government to tap the country's real revenue potential of almost Rs2 trillion ultimately affects the provinces, because they are dependent on what the Centre collects. As the Federal Bureau of Revenue (FBR) looks all set to miss the revenue target set for the ongoing financial year, the provinces will in all probability get even less than Rs500 billion as their share. We are in a dilemma -- the Centre is unwilling to grant the provinces their legitimate taxation rights and, in turn, the provinces are unable to reduce the ever-increasing burden of taxes on their poor populations. The Centre may shift some of the federal taxes to the provinces, most likely sales tax (as in India), if tax collection increases substantially. The FBR (then Central Board of Revenue -- CBR) took four years from 1998-99 to 2001-02 to increase tax collection from Rs307 billion to Rs401 billion -- an average increase of Rs24 billion a year. From 2002-03 to 2004-05, the FBR managed to increase tax revenue from Rs460 billion to Rs590 billion -- a poor performance considering the fact that the average annual increase did not even cover inflationary impact. In 2005-06, the tax collection was Rs710 billion; while in the last financial year, it was Rs843 billion. This year's revenue target of Rs1.025 trillion has already been slashed to Rs950 billion, while our real potential is not less than Rs1.6-Rs1.8 trillion. The FBR's track record shows little possibility that the revenue target of Rs2.2-Rs2.7 billion will be achieved in the next five years. If we want to come out of this situation, there is an urgent need for equitable distribution of fiscal and taxation powers among the federation and the provinces. Provincial autonomy is meaningless without fiscal rights, and redistribution of income and wealth among all the federating units. It is hoped that some concrete measures will be announced in the forthcoming budget by the new coalition government for the achievement of these goals. (The writers are tax consultants. Email:
By
Nadeem Iqbal A contentious issue that the Musharraf-led government has failed to address in more than eight years and has left for the new government is that of the National Finance Commission (NFC) Award. The new coalition government also does not seem to have developed any position on the issue so far that could satisfy all the provinces. The Charter of Democracy, often referred as the 'Magna Carta' of the coalition government, says: "The Concurrent List in the Constitution will be abolished and a new NFC award will be announced." In the same vein,
Federal Finance Minister Naveed Qamar recently said: "We would
support changes According to the Constitution, the president constitutes the NFC -- consisting of federal and provincial finance ministers -- to recommend the formula for the distribution of net tax proceeds among the federation and the provinces, as well as grants-in-aid to the provinces. The president, however, can bypass the NFC by making amendments to the formula without considering its recommendations. This is exactly what happened in 2006. When the Sixth NFC, constituted in 2005, could not finalise any recommendations, the president amended the previous NFC Award through the 'Distribution of Revenues and Grants-in-Aid Order'. According to the presidential order, the overall provincial share in the net divisible pool would not be less than 45 percent in the first financial year and 50 per cent in the last financial year. An amount equivalent to one-sixth of the net proceeds of sales tax, out of the provincial share in the divisible pool, shall be distributed among the provinces on the basis of 50 percent population and 50 percent audited figures of Octroi Zila Tax. The remaining provincial share, after deducting one-sixth of sales tax, shall be distributed among the provinces on the basis of population. Meanwhile, the subventions increased from Rs8.7 billion to Rs27.75 billion; and are to be increased annually in line with the increase in divisible taxes each year. If we go by the book, the next (Eighth) NFC Award is to be constituted in 2010. Between 1974, when the first NFC was constituted, and 1996, five NFCs were constituted. But the Musharraf regime failed to announce even a single NFC Award in more than eight years. In July 2000, the Sixth NFC held 11 meetings and constituted four working groups on specific term of reference for formulation of recommendations. But the NFC could not finalise its recommendations. It is strange that the provinces fail to evolve consensus on the NFC Award only during dictatorial regime. According to the Ministry of Finance's record, the Second NFC also failed to reach consensus in 1979, when Ziaul Haq was in power. However, after the population census in 1981, the percentage share of provinces under the NFC Award was changed through 'Distribution of Revenues Order, 1983', with Punjab getting 57.97 percent, Sindh 23.34 percent, the NWFP 13.39 percent and Balochistan 5.30 percent. The Third NFC in 1985 also failed to make recommendations. Though Naveed Qamar has indicated reconstituting the Sixth NFC Award, circumstances suggest that instead of reopening the Pandora's Box, the government should go for the Eighth NFC Award due to be announced in 2010 and that too after conducting the national population census, which is scheduled for October this year.
'Punjab poised to gain in any case' Interview with former Punjab Finance Minister, Shahid Hafeez Kardar By
Shahzada Irfan Ahmed The News on Sunday: Are you satisfied with the distribution of resources under the National Finance Commission (NFC) Award? Shahid Hafeez Kardar: Though I do not disagree with the formula of distribution of resources under the existing NFC Award, I think it should be revised as many economic indicators have changed over the years. TNS: What do you exactly
mean by the revision in the formula? Should the allocation of resources SHK: My point is that the formula for this purpose must be revised in a way that due weightage is given to multiple factors, including the population of the provinces and their revenue collection. I don't think Punjab has anything to lose even if the division of resources is based on the basis of revenue collection. As per the latest figures, the share of the province in terms of sales tax and withholding tax is 71 and 66 percent, respectively. Besides, the provinces have also demanded more share from the federal divisible pool on the basis of being backward. Even on this count, Punjab has a good case. Here I would like to stress the point that the whole of the province is not as well-off as is commonly perceived. There are districts like Mianwali and Bhakkar that are as backward as any underdeveloped district in Sindh or Balochistan. This year the government did not have much time to work on the NFC Award, but I hope it will consider these points while trying to evolve a consensus on this issue. TNS: What do you think should be the priorities for the forthcoming Punjab budget and how do you intend to provide relief to the poor of the province? SHK: I think the Punjab government should go ahead with its plan to provide direct relief to the poor. The proposal about direct cash transfers to the poor can be a choice, but I feel the government must launch this programme in selected districts on experimental basis. It should also ensure that there is no duplication, because it may happen that the federal government is compensating the same family that has benefitted from the provincial government under this head. I would also suggest that the ongoing development plans focusing on education and health should not be abandoned. The government will have to see how it can arrange funds for these programmes, considering the fact that this year there will be no funding from the World Bank for this purpose. The projects launched by the previous government can be continued after necessary changes if need be. Agriculture is the strength of Punjab, but unfortunately it has remained a neglected sector since ages. I would suggest that the government pay special attention to this sector, which also provides basic raw material to the industry. Increased opportunities to receive vocational trainings automatically translate into more jobs for the people. Therefore, the Punjab government needs to earmark sufficient funds to promote vocational training in the forthcoming budget.
'NWFP needs to be compensated for violence' Interview with former NWFP Finance Minister, Haji Muhammad Adeel By Javed Aziz Khan The News on Sunday: Are you satisfied with the distribution of resources under the National Finance Commission (NFC) Award? Haji Muhammad Adeel: No
the NWFP or the ANP-led coalition government in the province is not TNS: Should the allocation of resources under NFC be on the basis of population, area or a combination of both? HMA: The NWFP has never agreed with the formula of distribution of resources under the NFC Award on the basis of population alone, because this is contradictory to the federal government's stance that has always advocated adopting family planning measures and has set up a full-fledged ministry for the purpose. If resources are to be distributed on the basis of population, then the provinces must concentrate on increasing their populations, while suspending all other activities. Tell me how this formula can be implemented in Balochistan, which has the lowest population among all the four provinces but more area than any other province. There are so many factors, like area and poverty, which should be considered while giving resources to the provinces from the federal divisible pool. TNS: What are the priorities for the forthcoming budget and how do you intend to provide relief to the poor of the province? HMA: Simplicity, efficiency and honesty are the three traits through which the government can provide relief to the people in the forthcoming budget. Our priorities must be the sectors of education and health, especially that of girls and women. We must spend more and more in these sectors, at least 10 percent more then the budget allocated for these sectors in the current financial year. I would suggest freezing the salaries of the chief minister, the governor, ministers, parliamentarians and all government officers working in or above BPS-20 for the next five years. There must be no increase in their salaries and incentives, as well as no purchase of new cars and furniture. We must adopt simplicity if we are really committed to serve the public. More resources should be allocated for the development of the tourism sector and infrastructure development, to invite more investment opportunities in the NWFP. I am also concerned about the closure of most of the industrial units in the province. The new budget should also offer incentives to industrialists in the province. 'The federal government owes us Rs128 billion' Interview with Balochistan Finance Secretary, Mehfooz Ali Khan By Arif Tabassum The News on Sunday: Are you satisfied with the distribution of resources under the National Finance Commission (NFC) Award? Mehfooz Ali Khan: I
don't think the existing NFC Award is acceptable to most of the provinces.
There are serious reservations to the formula being used for years for
resource distribution under the NFC Award. As the least populated
province, Balochistan gets the smallest share from the federal TNS: Should the allocation of resources under NFC be on the basis of population, area or a combination of both? MAK: There is no resource distribution formula consisting of only one indicator anywhere in the world. Composite formulas are used by federations to distribute resources among their federating units. Its canvass needs to be widened by inclusion of more appropriate indicators. All the provinces are trying to get their due share on the basis of their strengths. Punjab is happy with the distribution of resources on the basis of population, while Sindh wants it to be on the basis of revenue and income collection. The NWFP wants to make poverty an indicator, while Balochistan wants to have it on the basis of area. Balochistan needs more resources than other provinces to make outreach of services available to its remote areas. To open a school or a health unit or build farm-to-market roads, more resources are needed here than other provinces. As the province's population is small, the cost of services in Balochistan is many times higher than the other provinces. TNS: What are the priorities for the forthcoming budget and how do you intend to provide relief to the poor of the province? MAK: The budget preparation is already underway in the province. The Planning and Development Department is responsible for conceiving development schemes under the guidelines of the Finance Department. As the announcement of priorities and relief to the poor is part of the political structure, we would have to wait for the budget presentation day. One thing that I can share is that the Balochistan government will increase salaries of provincial government employees, following the federal government. Similarly, most of the ongoing development schemes will have priority in the forthcoming budget. For details, let's wait a few days more!
'The existing NFC is unfair to Sindh' Interview with Sindh Finance Secretary, Ghulam Ali Shah Pasha By Salman Siddiqui The News on Sunday: Are you satisfied with the distribution of resources under the National Finance Commission (NFC) Award? Ghulam Ali Shah Pasha: No, Sindh is not satisfied at all with the distribution of resources under the existing NFC Award. TNS: Should the
allocation of resources under NFC be on the basis of population, area or a GASP: Sindh has not deviated from its old position and continues to demand that revenue collection should be the basic criteria for the allocation of resources among the federating units under the NFC Award. It also gives equal importance to backwardness as another key component of the NFC Award. I demand of the federation to set revenue collection and backwardness as the two basic criteria for the distribution of resources among the provinces under the NFC Award, instead of population. The allocation of resources under the NFC Award should be made in accordance with the taxes the provinces pool in the federal divisible fund. Similarly, the backwardness of provinces should be given equal importance, along with their financial efficiency and revenue collection. Backwardness is not limited to the NWFP and Balochistan; it can also be seen in rural areas of Sindh and Punjab. Population, the chief component of the interim NFC Award announced in January 2006 for the next five years through a presidential ordinance, should also be given a fractional portion in the NFC Award. Sindh will strongly present its viewpoint on the NFC Award formulation in the next meeting and will try its best to convince the other federating units on its proposed criteria. Sindh pools roughly 67 percent of revenues in the total divisible funds and receives only 25.6 percent in return under the NFC Ward. This is not fair with the province. TNS: What are the priorities for the forthcoming budget and how do you intend to provide relief to the poor of the province? GASP: The size of the Sindh budget for fiscal year 2008-09 would tentatively be the same as was allocated in financial year 2007-08 -- Rs236 billion. The next year's budget will be pro-poor people and the provincial government is going to levy no new taxes. However, some sectors are under the government's consideration for levying of new taxes, but this will be disclosed in the budget speech. To keep the budget deficit under control and to enhance revenue collection in the province, the Sindh government also plans to make the existing tax collection system more efficient and reactivate some dormant sectors.
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economic situation is absolutely dire and the ordinary working people of
Pakistan are the worst affected. The dragging on of the judges' issue
reflects just how much more than eight years of dictatorship has set the
polity back, in that the continuing fallout of the emergency imposed by
General (r) Pervez Musharraf on November 3 has relegated the economic
hardships of the people to a matter of secondary importance.
making. However, it is perfectly legitimate to bring into focus the
measures that the new regime plans to adopt to address these crises. The
budget is the first major indicator of just how much change the people of
Pakistan can expect under the new dispensation.
presentation of the Federal Budget 2007-08, the current economic situation
calls for revising optimistic valuations of the effectiveness of basic
policy assumptions. If both equity and efficiency matter in economic
development, as argued by many economists, it is high time to reorient
budgetary allocations.
not been the case in Pakistan -- despite several decades of economic
growth, gender disparities remain as glaring as always in the country.
Some may argue that poverty is similar to a pandemic that affects everyone
irrespective of the gender. After all, in 2005, Pakistan was ranked 136th
out of 177 countries on the Human Development Index (HDI) -- a composite
measure of human progress in terms of education, life expectancy and
standard of living. A low HDI suggests that poverty has affected everyone
indiscriminately and resulted in an overall low standard of living.
economists and international financial institutions (IFIs) provides the
baseline data for accessing the vulnerable sections in Pakistan. For
example, the Poverty Reduction Strategy Paper (PRSP) provides
district-wise data on the incidence of poverty. Similarly, reports
prepared by the Social Policy Development Centre (SPDC) provide details of
district-wise development indicators. Moreover, studies by the National
Reconstruction Bureau (NRB), provincial Planning and Development
Departments, and various other organisations have enough information about
the incidence of poverty and the poor.
forecast of revenues and expenditures for the next financial year. While
speech writers are busy in finalising the finance minister's speech, the
hoarders have already started stocking the essential commodities of life.
This year, the budget promises to be a real challenge, both for the
budget-makers and the common citizens. While there is an enormous pressure
on budget-makers to provide instant relief to the masses, they have
already conceded that life would be even more difficult after the
forthcoming national budget.
different spheres of life, but more specifically in the distribution of
taxes among the federation and the federating units. Assignment of taxes
is a vital constitutional and political issue that has been blatantly
ignored, resulting in there being no judicious distribution of taxes among
the Centre and the provinces. Prime Minister Yousaf Raza Gilani, in his
maiden speech after winning the vote of confidence, made a pledge that the
Concurrent List in the 1973 Constitution would be abolished within one
year. One wonders why the list cannot be dispensed with immediately,
because there is a consensus in both the houses of Parliament that it
hinders fair and equitable distribution of taxes among the federation and
the federating units.
to the NFC Award and will try to renegotiate it. As provinces have to
provide services, we do not want to squeeze them." Qamar's views
reflect a widely held perception in the Ministry of Finance that the
provinces take pride in announcing a tax-free budget and do not
concentrate on increasing their revenue, while asking the federal
government to solve all their economic problems through the NFC Award.
be made on the basis of population, area or tax receipts, or you have some
other formula in mind?
satisfied at all with the existing formula set for the distribution of
resources under the NFC Award. The NWFP can never come on a par with other
provinces if it is not given its due share under the NFC Award,
considering poverty, illiteracy and other factors. The province has been
hosting almost 3.5 million Afghan refugees for the past three decades,
which has affected its education, health, infrastructure, business and all
the other sectors. The law and order situation and violence are other
factors for which the NWFP needs to be compensated and given subvention by
the federal government.
divisible pool because the existing formula is based only on population.
The 1998 census is being used as the main source of population count,
while population has now increased considerably. It has not included the
market price of the day, which means this old formula is now outdated.
Balochistan is the only province that generates Gas Development Surcharge
(GDS), but till 1991 it was not included in the NFC Award and the federal
divisible pool. The production base is Balochistan, but its benefits are
distributed among other provinces too, which is a point of concern. The
federal government owes Rs128 billion to Balochistan as GDS arrears. The
case of royalties, which are not been paid to the province on a just
basis, is very similar.
combination of both?