Mantra of inclusive development
A country's budget, in addition to estimating annual revenues and expenses, provides an opportunity to uplift the well-being of the people through fiscal management.
On June 11, the current government announced its fourth budget with a total outlay of Rs8.487 trillion and gross revenue receipts (tax and nontax) of Rs7.909 trillion. The budget is presumed to be growth-oriented, with additional claims of 'bottom-up' approaches to poverty reduction and more inclusivity in the development process. Accordingly, a set of measures, including incentives to businesses, increase in the PSDP, social protection to marginalized groups, loan facilities to low-income households, support to SMEs etc is proposed in the budget. Despite these measures, success in terms of inclusive growth or development highly depends on how these plans are executed or how these incentives are reached to the downtrodden segment of society.
What does inclusive growth mean? The World Bank defines 'inclusive growth' as "the pace and pattern of economic growth, which are interlinked and assessed together". Alternatively, inclusive growth comprises four components pace of economic growth, poverty reduction, distributive justice or reducing inequalities, and productive employment.
With regard to pace, economic growth in Pakistan has surpassed growth projections, with GDP growth of 3.96 percent in 2020-21 against a target of 2.1 percent, despite the retrogressive effects of Covid-19. This growth rate is even higher than the previous two years (2.08 and -0.47 percent in 2018-2019 and 2019-2020, respectively). Increase in remittances, and higher growth rates in large-scale manufacturing and wholesale and retail trade are the contributing factors in this regard.
This recovery is encouraging but it needs sustainability in two respects. First, it requires continuity for containing our fiscal and current account deficits which have been the regular features of our economy during the last two decades. Second, it should be selfsustaining, with raising investment and capital accumulation in the country. Given a growth target of 4.8 percent for 2021-22, with a claim to put the economy on path of a growth rate of 6-7 percent in the next two to three years, the government has made a 61 percent increase in the PSDP, allocating Rs900 billion for federal PSDP, and Rs1.235 for provincial PSDP.
The fiscal stimulus is worth appreciating, but it must contribute to the pace of growth by improving infrastructure and social sector development and creating an enabling environment for private-sector activities. Similar should be the effect of incentives to the private sector. For instance, around Rs119 billion of support to industries and individuals in terms of relief in Customs Duty (Rs42 billion), Sales Tax and Federal Excise Duty (Rs19 billion), Income Tax (Rs58 billion) would boost economic activities in the country. Likewise, Rs12 billion allocations to SMEs, reduction in capital gain tax on stocks from 15 percent to 12.5 percent, removal of withholding taxes on about eight types of services would further encourage private sector businesses in the country. In a nutshell, we have set the stage to enhance the pace of growth, provided that we have sufficient control over structural bottlenecks and institutional rigidities.
Amid the Covid-19 pandemic, poverty in Pakistan has been on the rise. According to recent estimates by the World Bank, based on lower-middleincome poverty rate ($3.2 per day), poverty in Pakistan stood at 39.3 percent in 2020-21. Likewise, it is 78.4 percent on the basis of the upper-middle-income poverty rate ($5.5 per day).