ISLAMABAD, 16 June 2003 — Pakistan’s national budget for fiscal 2004 that starts July 1, is not harsh in the sense that virtually no new taxes have been imposed, on a population that is comparatively overtaxed in view of its low per capita income. But, reliefs, virtually are not many to be found. In fact, the critics say its rich man’s budget, while the poor get no relief in the exorbitant prices of state-operated utilities, and the cost of living that has started moving up, although the inflation rate is still under 4.0 percent.
The government, however, staunchly defends the budget and claims it has all the potential to boost business, attract foreign direct investment (FDI), and positively maintain the country’s move on the growth path that it adopted more than three years ago.
The government cautions also that in case the tight financial discipline and the policy of a general austerity for the people — and the administration — is eased up too quickly, “the economy will go off the track,” as architect of these policies, Finance Minister Shaukat Aziz, puts it. “In case populist policies are adopted for even six months, the economy will skid off the track, and then it will be impossible to bring it back on track,” he also says.
Opposition leader Benazir Bhutto, now in self-exile, has described the budget “as anti-poor.” Other key opposition leaders call it as “jugglery of statistics.” However, the Parliamentary opposition has offered no substantive recommendations and alternatives or steps that could be incorporated in the budget to make the common man’s life a little bit easy.
The worst criticism against the budget has been directed on the fact that the government’s economic policies have pushed more people living below the poverty line and enlarged the number of the jobless. The number of the poor that had declined from 32 to 25 percent between 1990 and 1999, rose again to 32 percent by 2001. The government admits it to be so, but it also points out that the budget for 2004 provides a record Rs.187.6 billion pro-poor spending in order to alleviate poverty. However, independent analysts maintain that the close to 36 percent people now live below the poverty line. The number of the jobless, at the same time, rose from 6.0 percent in 1998 to 8.0 percent in 2003, with urban unemployment rising more prominently than in the rural areas.
But the per capita income rose 17.4 percent to $419 in 2003, that should translate into a slowly improving standard of living, but for high cost of utilities and cost of healthcare, housing and education.
The authenticity of the government’s numbers regarding industrial production and exports are also being questioned. The government, for instance, claims that industrial production rose 7.7 percent and large-scale manufacturing by 8.7 percent in fiscal 2003. The critics are asking if that’s so, why the number of the jobless also rose, rather than more people being employed to expand industrial output? The industries that performed fairly well in 2003 were topped by autos, while others included food and beverages, textiles and apparel, paper and board, metal products and machinery, and tires and tubes. The government counters the skepticism about jobs and overall production, by saying that more and more industries have become capital intensive and automated, requiring a reduced number of manpower.
Aziz points out that foreign direct investment (FDI) rose to $664.7 million in the first nine months of 2003, up from $284.5 million in 2002. FDI from United Kingdom accounted for 30.8 percent, followed by US with 24.8 percent, united Arab Emirates by 17.1 percent, and Saudi Arabia 5.0 percent.
Out of the total FDI, 30.6 percent went into financial business — mainly acquisition of Pakistan’s United Bank Ltd. by a consortium of Abu Dhabi and Bestway Investments of UK. At the same time, 20.8 percent FDI went into oil and gas exploration and 3.5 percent into textiles.
The government is also being questioned regarding exports rising to $10.4 billion in 2003. There is skepticism about this number, because analysts feel that it does not reflect export earnings alone. The amount, in fact, may includes money previously stashed abroad by businessmen, through under-invoicing of their past exports, and over-invoicing of their imports. It may also include what Dr. Ishrat Hussain, governor State Bank of Pakistan (SBP), the central bank, calls “the reverse flight of capital.” The build up of the SBP’s forex reserves to the present record level of $10.5 billion, owe a great deal to $4.3 billion home remittances sent this year, by overseas Pakistanis working in the Gulf, Saudi Arabia, Middle east and North America. But, in case political situation deteriorates back home, or international environment or monitoring of money flows eases, the quantum of remittances may decline.
In fact, the government already is lowering its sights on remittances, and has projected comparatively smaller inflows during 2004. The whole crux of this argument is that the present build up of forex reserves and improvement in balance of payments is still quite vulnerable.
As such, Pakistan has to genuinely, and quickly, build up and expand its industrial base, its services sector, and the farm sector to enable larger exports. That alone, will make its forex reserves and good balance of payments sustainable.
