Budget-making is a time for reflection. It provides an opportunity for us to step back and evaluate how the economy is doing, how our policies correlate with the overall strategy, what changes are needed and how we can use the budget to take the economy on to a higher growth path. Budget-making in Pakistan, indeed all over the world, is a process through which governments implement their economic policies. This year, the budget exercise was undertaken in the background of a better macroeconomic situation, which allowed us to be relatively more aggressive. This time we could shun incrementalism because the economy has responded positively to the reforms and policy initiatives undertaken by the government during the last four years and has positioned Pakistan for a quantum leap. If you look back in history, such an opportunity was not available to the economic managers of Pakistan. Today, Pakistan is well placed in terms of growth, balance of payments, fiscal position, level of resources and, above all, creditability as a country whose economic management is serious, professional, transparent and growth-oriented.
The budget preparation process starts in January and involves numerous discussions within government and between government, civil society, industry groups, legislators, agriculturist, labor representatives, the media and many others. This was an opportunity to present a budget that ensures continuity and consistency of policy, further strengthens the reform process and creates maximum opportunities for growth, job creation, institution building and income generation. This year, the budget can be described as one that provides opportunity to all segments of society through enhanced investment and growth. Keeping this objective in view, we also have to ensure that whatever policy measures we take create an environment whereby the benefits of growth are shared as widely as possible.
One of the key aspects of this budget is a record Rs202 billion development program, a major portion of which is meant for infrastructure, followed by the social sector. In infrastructure, water, roads, railways, ports and electricity generation have been provided the highest priority. Any country with a growth rate of 6 percent or more needs to aggressively develop its infrastructure capability so that growth is not constrained due to infrastructure bottlenecks. Hence the 26 percent increase in the Public Sector Development Program, complemented by another Rs50 billion to be spent by public sector corporations like OGDC, PTCL, WAPDA, the Civil Aviation Authority and others from their own resources. This massive development program will not only enable growth, but will have a direct impact on job creation, which is a major challenge facing developing economies like Pakistan’s.
Poverty Reduction
More growth and job creation will have a direct bearing on reducing poverty levels. Poverty reduction is all about providing opportunities. In our culture, most people prefer not to live on charity but to earn an honorable living through their own efforts. As a country, we did not always provide our people opportunities to leverage their skills and potential. When we study poverty, we need to look at it very holistically. Poverty has many facets that include lack of essential services and deprivation in different forms. Income poverty is merely one facet of deprivation which manifests itself in many ways, including lack of infrastructure, lack of basic services like education and health, lack of access to justice, lack of security, lack of human and democratic rights. Deprivation has a direct link with extreme behavior. When people feel that they are getting their due share in society and that their personal efforts are recognized and rewarded, they will be less influenced by forces which destabilize society. Recent surveys in Pakistan indicate that accelerated growth is beginning to impact the people. However, Pakistan’s population is spread over a large area and the development program is uneven, thus creating inequity in incomes and levels of poverty. A lot of progress has been made but much more needs to be done. We have a long way to go before our war against poverty makes a major dent in the feeling of deprivation that exists in society.
The need was to formulate a budget which provides an opportunity to reposition the economy in line with the improved macroeconomic situation. We needed to move forward by shedding the incrementalist approach and crafting a much more aggressive budget philosophy. There is buoyancy in the economy as compared to last year. It is showing signs of accelerated growth which will form the basis for even higher growth in years to come. When we analyze the growth numbers for the financial year ending 2003-04, we see that they indicate a major contribution from the manufacturing and services sectors and some improvement in the agriculture sector.
Agriculture Enhancement
Agriculture is a sector which provides 26 percent of the GDP while 65 percent of the total population lives in rural areas. This year agriculture growth is estimated to be 2.6 percent below the target of 4.2 percent because of pest attack on the cotton crop and the impact of unfavorable weather on the wheat crop. Normal growth in agriculture would have enabled the GDP for the year 2003-04 to cross 7.0 percent. A very aggressive agriculture strategy is, therefore, needed to realize future growth objectives. After numerous discussions with farmers, rural legislators, experts and strong support from the president and prime minister, we were able to put together a package which focused on reducing the cost of inputs, encouraged further mechanization, provided for higher water resources, substantially increased agriculture credit, as well as improved support, research and extension services. While a comprehensive strategy is still in the making, we could not let this major sector of the economy go by. Therefore, to increase agriculture productivity a package has been announced by the president at the farmers’ convention and has been formalized as part of the budget. Significant measures include decrease of mark-up on agriculture credit by ZTBL, which is no longer the only source of agricultural credit. New incentives like agriculture credit cards, leasing and revolving credit will enable the agriculture sector to find additional sources of capital and investment. The rural sector is still starved of capital and a substantial increase is needed to produce results which ensure much higher productivity and growth. In addition, a much more focused approach is needed to improve rural infrastructure, education, health, farm-to-market roads, rural electrification as well as provision of water, sanitation and other basic facilities.
Several new initiatives have been included in the budget to provide relief to the rural sector. These include increased emphasis on rural development requiring focused development efforts. This year’s budget includes a pilot program which puts in place linkages between the local community, rural support program, micro finance, local government and community representatives. A combination of community capacity building and private enterprise development will be encouraged to supplement the resources available from the government, the Pakistan Poverty Alleviation Fund and Khushhali Bank. Rural development will enable Pakistan’s rural population to share the benefits of development and improve their quality of life. Another initiative which will augment the economic condition of the rural population is the development of cottage industries. This will provide an avenue for income generation and leverage local talent, arts and crafts.
Our Economic Philosophy — “Creating Opportunities”
Let me share with you how I view the evolution of economic management as development adjusts from a protective environment to a truly market-based economy. The changing environment would require a policy-maker to innovate, try new ideas and take more measured risks. Change is difficult, painful and challenging but it is an essential requirement for any economy to move with or ahead of the times. One example of this approach was the re-entry of Pakistan in the international capital markets, which was essential to re-establish links with the international investors as well as rebuilding our credibility with the international financial community. We decided to go for a $500 million Eurobond issue and chose a group of leading European and US investment banks to take us to market. As we started the road shows, stories about nuclear proliferation hit the headlines and created some level of anxiety. However, the Pakistan story of economic reforms and improvements in the macroeconomic situation overcame these concerns and the bond issue was not only heavily over-subscribed but was extremely finely priced relative to our international credit rating.
Pakistan has come a long way in nearly five years. There have been a lot of achievements but much more need to be done. The budget addresses many of these challenges and I am convinced that if we maintain consistency and continuity of policies over an extended period of time, sustainable success will be ours. The budget includes relief for the people, incentives for agriculture and industry and will help create a higher growth environment. Broad-based initiatives in the budget will touch all segments of society. Our objectives were to have the budget result in high growth, creation of jobs, increase in income and reduced unemployment and poverty and keeping inflation within reasonable limits. Higher oil and wheat prices have created pressure on prices in general. We froze the consumer price of petroleum at around $40 per barrel at considerable cost to the government. The decision to import and maintain one million tons of wheat for buffer stock will ensure supply continuity as well as price parity. The increase in wheat support price was bound to lead to a corresponding increase in retail price. There is clear room for improvement in procurement, distribution and marketing of wheat and flour to remove dislocation in supplies.
(Courtesy: Blue Chip magazine)
