Humayun Gauhar | 9 JUNE, 2015
The Budget: Sifting fact from Fiction
A vegetable seller in Lahore:his budget?
This is not a conversation with Maverick, Munna and Babar. Instead, it is a lecture to them.
The problem is that Pakistan is hurtling towards the precipice faster than the forces that can stop it are moving. You might think that I refer to the army and the judiciary, but the biggest such force is common sense, good intent and clarity of purpose that comes from a doable ideology. Sadly, all of them abandoned our rulers and us a long time ago.
That great religious seer, sage and singer of ours, one Aamer Liaquat, symbolizes stupidity and mal-intent to the brim by getting both Masters and PhD degrees the same year, 2002. Or is it genius? Ten minutes with the seer makes it obvious that the guy is a fake like most seers, yet thousands of people, mostly women, are in awe of him. If memory serves, that was about the time he was made minister of state for religious affairs in the Musharraf era. Yet a private television is bent on foisting this odious Man from Mount Olympus on us, for he sells. Capitalism gone berserk.
Its budget time, yippee, a total waste of time. Let me try and explain how to assess any government’s budget. First, one has to make certain assumptions. The most important is: what are a government’s priorities. Priorities have become wonky the world over, except in China. Then, in developed countries, one has to look out for exaggeration and hidden expenses, like US military toilet seats costing $2,000 each so that the money can be diverted elsewhere on secret defence projects or even pocketed. As for developing countries, the assumption has to be that the budget could be a pack of lies, exaggeration and miscalculations through the use of outmoded methodologies by inept people. That is just what transpired to an embarrassing extent in Pakistan last year when we ended up with two different economic growth rates, we are told because of a typo, which exposes the fact that the reader of a budget, the finance minister, doesn’t know what he is reading. One has to look out for accounting engineering in both kinds of countries.
It is not easy to get to the truth. It takes time. But if you take the budget at face value, as too the annual Economic Survey, one will only end up misleading oneself and others and keep wondering the entire year what happened to the big talk and promises. The truth is that since the return of ‘democracy’ our budgets have been IMF budgets, a practice that was stopped during the Musharraf-Shaukat era because they took Pakistan out of IMF programme and reprofiled our debt. Democracy, or what passes for it in this benighted country of ours, brought back incompetence coupled with stupidity and bad intent, which in turn brought the IMF back into the equation with full force. Going to the IMF should be cause for embarrassment; here is taken as a cause for rejoicing and success that another tranche has been released, so wonky have our values and priorities become.
The Economic Survey of Pakistan comes out a day before the budget. It is basically a report card of the government’s performance for the year: to what extent has it met its own budgetary targets and the overall condition of the economy. That too cannot be taken at face value. The first question that arises is: how did they arrive at the figures, what methodology did they use and how dated it is, what is the quantum of extrapolation and error? Growth rate is all very well, but growth where? Is it growth in sectors that matter like agriculture and large-scale manufacturing or in the services sector that does not give the economy much of a foundation. As it transpires, the government has missed most of its own targets in all three sectors, which is horrendous.
See what has happened to the British economy: times were when Britain was a top manufacturer of white goods and industrial machinery with a large share of the world market. Remember the Tiger Cub motorcycle, the Humber, Morris and Vauxhall cars to name but three, the Viscount aircraft? Where are they now? Where is the British economy? They have themselves destroyed their manufacturing base and are at the mercy of banksters and Franco-German economic hegemony in the EU, with hundreds of thousands of workers from Eastern Europe taking British jobs on the cheap, leaving the natives on the dole. The only sensible decision Britain has taken in my lifetime is not to join the Eurozone. If they leave the EU in 2018 – ‘Brexit’ as they call it – they would do themselves a favour. If Greece exits the EU – ‘Grexit’ as they call it – Brexit could be hastened.
Britain exported jobs elsewhere and has finally reduced itself to no more than Europe’s primary financial sector, which is not investment in the ground but in the air and can blow away when the winds become gale force.
While investment in the financial sector and stock markets is to be welcomed, it does not provide much foundation to an economy. Sure purchase and sale of shares makes money go round within a limited circle of people, but it does not add to productivity and growth unless a company is raising money for investment from the markets (which is better than loans) because it has actual physical production behind it. It provides the growth that matters. Even an island nation like Singapore, apart from being a shipping and financial hub, has developed a manufacturing base. So why can’t we? Because we are much bigger? Does that make us unmanageable? The answer, stupid, is to remodel Pakistan into many provinces and units and make each one a Singapore. By the way, Dubai is not a model to be emulated for obvious reasons.
Last year’s economic performance has been expectedly pathetic, but next year it should improve because work on the China-Pakistan Economic Corridor (CPEC) should commence despite the terrorism of religious extremists and India’s State Terrorism backed by America both of whom the Corridor doesn’t suit one tiny bit. India’s mass murdering terrorist prime minister has said so. Google, I’m told, has Modi at number none on its list of India’s biggest criminals. ‘Largest Democracy in the World’, what?
Here are certain, but not all I hasten to emphasize, vital indicators that one has to look at to evaluate a budget and economic performance.
GDP, Revenue, Expenditure, Deficits or Surpluses: Simply put, fiscal deficit or surplus is the difference between income (government’s revenues mostly from taxation) and expenditure. A budget without fiscal deficit is called a ‘balanced budget’. There are many ways to balance a budget, like increasing revenues and decreasing unnecessary expenditures and, very importantly, stop subsidizing loss-making state enterprises like PIA and many others. Just privatizing them or even liquidating some of them will save a huge amount of money. Instead, the government is decreasing subsidy on items that matter to the poor who are in the overwhelming majority. That brings Gross Domestic Product (GDP) into the equation as too revenue collection and expenditure. How exactly has GDP been calculated and how much of the economy has been left out of the equation. Where exactly has revenue come from, how much from direct and how much from indirect taxation? The more the revenue from direct taxes the better, for indirect taxation like GST (General Sales Tax) is inequitable because it is the same 17% for rich and poor alike, except on a few items like uncooked food, textbooks and medicines that are GST exempt. In our case revenue collection has increased, they claim, but even if the figure is correct it is far from enough. To increase revenues they must increase the tax base by documenting the informal and deliberately untaxed economies. ‘Informal’ is the legal economy that the government has not documented and bothered to bring into the tax net for fear of a backlash from traders and feudal lords and decline in votes come the next elections. The biggest deliberately untaxed economy is income from agriculture that is exempt from income tax, which it needs reminding is a federal subject even if agriculture is a provincial subject. The underground or black economy does not even figure here, nor too the huge bribes and embezzlement of government officials political and civil. At one time, just the bribes taken by the FBR, our revenue-collecting agency, were more than our defence budget. I’m not told that this has changed, not much anyway. According to the CIA, Pakistan’s real GDP is three times bigger than its official GDP. Try that on for size. We should be a middle-income country, our government not pathetically poor.
Current Account: Put simply, the accumulated deficit financing i.e. loans taken from abroad and from our central and commercial banks and at what interest rates. Our current account is humungous.
Balance of Payments: The difference between how much has the government earned and paid out abroad and is it in surplus or deficit? That includes the trade surplus or deficit, the difference between export earnings and import expenditures. Then there is debt servicing that is the highest expenditure in our budgets. Logic demands that we reduce our overall debt, especially external, but we are forced to take more and more loans just to remain afloat. We have become the piper who has to play the tune called by the paymaster and even dance to it. Our paymaster is the IMF, our finance minister the piper-dancer. Logic also demands that we increase export income and decrease import expenditure. It’s easier said than done because to increase export earnings we have to decrease exporting primary goods (mainly rice and cotton) and increase value added exports. But how, when we don’t have the infrastructure, particularly energy, to invest in industry that adds value? Logic also demands that while our three main imports – petroleum, edible oil and tea – are price inelastic i.e. their demand doesn’t decrease due to decrease in price, we should at least stop importing unnecessary luxury items like cosmetics and toiletries and increase the import of capital goods i.e. industrial plant and machinery with which we can indigenously manufacture machinery for our factories, namely machine tool and precision engineering that thoughtless and vengeful feudal-led nationalisation destroyed in the Seventies.
Growth rate: Pakistan’s economy or GDP needs to grow at 7% (not 6%) annually to break even, i.e. provide enough jobs for youth coming onto the job market every year. Else the youth will drift into crime or be seduced by terrorism or forced into prostitution, all three of which are growing faster then the economy. That makes for anarchy, the beginnings of which are already upon us. Our growth rate is a paltry 4.2% and has missed the target by nearly 1%, a product of the strategy of telling lies now to make people feel good and make excuses next year while making new big bombastic promises for the next year. And so the circus goes on until the country reaches the precipice.
Human Welfare: This is the primary, indeed the sole, purpose of a State’s existence. Without a constant improvement in the human condition a State loses its justification for existence. By that measure none of the South Asian states should exist. Budgets should be geared to bringing down inflation i.e. the cost of living, by decreasing unemployment and increasing incomes. Inflation has decreased as too the cost of living thanks to the drastic fall in oil prices. But for how long? We can’t make much progress without developing human capital by providing people dignity which means ensuring contemporary international-level education, especially vocational education, nutrition, health, housing, clothing, security and, above all, justice. But we cannot even begin to do any of this without decelerating the population growth rate.
One could write an entire book on this because it is about the Rights of Man and God’s Creations or Haqooq ul Ibad, the manifesto of an Islamic state that we hypocritically claim to be.