Pol­icy frame­work for bud­get

The Pak Banker - - 4EDITORIAL - Ishrat Husain

THE an­nual bud­get is not only a state­ment of rev­enues, ex­pen­di­tures, fis­cal deficit and gov­ern­ment bor­row­ings but also a pow­er­ful tool for ef­fi­cient re­source al­lo­ca­tion and util­i­sa­tion, eq­ui­table distri­bu­tion of in­comes and a sig­nal to the pri­vate sec­tor about the econ­omy's di­rec­tion. The bud­get's cru­cial el­e­ment in­cludes the speeches de­liv­ered by the fed­eral and pro­vin­cial finance min­is­ters which set the un­der­ly­ing pol­icy frame­work.

The ob­jec­tive of bud­get 2016-17 should be to put Pak­istan back on the tra­jec­tory of rapid eco­nomic growth with the at­ten­dant ben­e­fits of poverty re­duc­tion, de­liv­ery of ba­sic pub­lic ser­vices and over­com­ing de­fi­cien­cies in the phys­i­cal in­fra­struc­ture.

The do­mes­tic en­ablers for the 2016-17 bud­get look more favourable than any for the pre­vi­ous three years. The se­cu­rity situation par­tic­u­larly in Pak­istan's trou­bled parts is much bet­ter. Op­er­a­tions against ex­trem­ist groups are pro­ceed­ing.

Power load-shed­ding par­tic­u­larly in the in­dus­trial and ex­port sec­tors has de­creased. RLNG im­port has eased the short­ages of nat­u­ral gas for pro­duc­tion units. Oil and petroleum prod­uct prices have de­clined sharply, re­duc­ing pres­sure on the cur­rent ac­count. The ex­ter­nal sec­tor is less vul­ner­a­ble. In­fla­tion­ary ex­pec­ta­tions re­main sub­dued. In­ter­est rates are at their lowest level in a decade.

The re­main­ing chal­lenges for 2016-17 are still daunt­ing. Ex­ports have been stag­nat­ing and the cot­ton crop fail­ure this year has wors­ened the situation. Large-scale man­u­fac­tur­ing has re­mained sub-par and agri­cul­ture has suf­fered enor­mous in­come losses be­cause of weak­en­ing global com­mod­ity prices. Pri­vate in­vest­ment has been lack­lus­tre and the prov­inces have been un­able to utilise devel­op­ment spend­ing ef­fec­tively or im­prove ac­cess to ba­sic ser­vices such as ed­u­ca­tion, health, drink­ing wa­ter, san­i­ta­tion, etc. The tax base re­mains nar­row de­spite ef­forts to pe­nalise non-fil­ers and then in­cen­tivise them through the tax amnesty scheme. Over-tax­a­tion of ex­ist­ing pay­ers is creat­ing dis­in­cen­tives for ex­pan­sion and in­vest­ment.

What should the pol­icy frame­work con­sist of? First, ef­forts to broaden the tax net should be re­lent­lessly pur­sued and non-fil­ers heav­ily pe­nalised. The heavy in­ci­dence of taxes, du­ties and cess on telecom, oil, gas and the fi­nan­cial sec­tor should be brought down. Sim­pli­fi­ca­tion of the tax code, grad­ual re­duc­tion in tax rates, bet­ter tax ad­min­is­tra­tion by min­imis­ing the dis­cre­tionary pow­ers of of­fi­cials, risk-based third-party au­dit and the greater use of au­to­ma­tion can play a vi­tal role in mo­bil­is­ing re­sources.

At the pro­vin­cial level, col­lec­tion ef­forts from ur­ban im­mov­able prop­erty tax, agri­cul­ture in­come tax, wa­ter charges and mo­tor ve­hi­cle tax should be ac­cel­er­ated. Co­or­di­na­tion be­tween the Fed­eral Board of Rev­enue and the prov­inces, and among the pro­vin­cial rev­enue au­thor­i­ties them­selves, can avoid am­bi­gu­i­ties and dou­ble tax­a­tion on busi­nesses.

Sec­ond, pro­vin­cial fi­nan­cial com­mis­sions should be formed im­me­di­ately to di­vide fi­nan­cial re­sources be­tween the prov­ince and lo­cal gov­ern­ments. It must be re­alised that vot­ers are more in favour of a party that can de­liver ba­sic ser­vices such as farm-to-mar­ket roads, health, ed­u­ca­tion, etc. They are least im­pressed by the strength of macroe­co­nomic in­di­ca­tors and for­eign ex­change re­serves.

This dis­con­nect be­tween pub­lic ex­pec­ta­tions and the frus­tra­tion felt by eco­nomic man­agers that their per­form- ance in avert­ing the cri­sis is not be­ing fully ap­pre­ci­ated must be ad­dressed. The my­opic view of pro­vin­cial gov­ern­ments to con­cen­trate all pow­ers and re­sources in their hands rather than de­volve them to lo­cal gov­ern­ments is caus­ing harm. The devel­op­ment, ed­u­ca­tion and health au­thor­i­ties, the wa­ter and sew­er­age boards, and waste man­age­ment com­pa­nies should be trans­ferred to the lo­cal gov­ern­ments with ac­count­abil­ity for re­sults re­main­ing in their do­main.

Third, im­prove­ments in trans­parency and cit­i­zens' re­dres­sal mech­a­nisms have to be fur­ther strength­ened. The wide­spread pen­e­tra­tion of mo­bile phones in the coun­try, a large com­put­erised na­tional iden­ti­fi­ca­tion sys­tem and the use of bio­met­ric data pro­vide ac­ces­si­ble plat­forms for tax pay­ment and fees, re­ceipts of tar­geted sub­si­dies, salaries, pen­sions etc. The au­to­ma­tion of forms and cer­tifi­cates by var­i­ous gov­ern­ment agen­cies would re­duce per­sonal in­ter­ac­tion and min­imise chances of cor­rup­tion. The feed­back of cit­i­zens for ser­vice de­liv­ery has been suc­cess­fully tested and tried in Pun­jab and can be ex­tended to the other prov­inces and tribal re­gions.

Fourth, there is an ur­gent and press­ing need to im­prove the reg­u­la­tory, com­pli­ance and en­force­ment en­vi­ron­ment so that pri­vate busi­nesses, par­tic­u­larly small and medium en­ter­prises, can func­tion in a pre­dictable and has­sle-free at­mos­phere. Most of the em­ploy­ment ex­pan­sion can take place if SMEs are pro­vided non-sti­fling proac­tive sup­port. They ac­count for 30pc of GDP and em­ploy 78pc of the non-agri­cul­tural labour force.

For­mal credit to this sec­tor and lack of skills have been the ham­per­ing in­flu­ences on tech­nol­ogy upgra­da­tion, prod­uct devel­op­ment and process reengineering. Petty gov­ern­ment of­fi­cials also make the lives of busi­nesses mis­er­able if they come un­der the or­gan­ised sec­tor. Re­straints have to be placed on food, labour, drug, en­vi­ron­men­tal and other reg­u­la­tory bod­ies as their er­ratic be­hav­ior acts as a de­ter­rent for pri­vate busi­nesses in the for­mal sec­tor. Fifth, pub­lic-sec­tor en­ter­prises op­er­at­ing at the fed­eral and pro­vin­cial lev­els con­trib­ute about 10pc to GDP. A third of stock mar­ket cap­i­tal­i­sa­tion is rep­re­sented by these en­ter­prises and cor­po­ra­tions.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.