There were times when the budget was synonymous with a vote of confidence. Remember the one rupee cut motions? Stripping the members of the power to vote against party line has served to reduce the budget debate to a desk-thumping and go-go contest. Whatever the budget's failings, it will be passed, with some cosmetic changes after the Accountant, in his infinite magnanimity, concedes certain innocuous demands. He has been around long enough to keep a bag of tranquilizers in his pocket.
Unsurprisingly, the Accountant congratulated himself for the major miracle of turning the Economy around. Surprisingly, he presented his 'vision' for the next five years, not knowing who will be in government. The vision consists of fundamental reforms; badly needed reforms that have a habit of eluding us.
Is the vision a preview of the ruling party's manifesto for the forthcoming elections? Or, is it a warning to the opposition: be careful what you wish for; real work to put the economy on a sound footing is yet to begin, and if you think it is going to be a walk in the park think again?
Let's try to demystify the vision. What he calls the second generation reforms are about financial markets, ease of doing business, property rights, regulatory apparatus, rule of law, efficient judicial system, and institutional strengthening. Now who could take issue with this rainbow? If that's all there is to the Charter of Economy, that the Accountant touts with incessant zeal, let's not wait for tomorrow.
Except that there are issues. For starters, the seven pillars of wisdom are intertwined: you can't, for instance, deepen the financial markets without having the other six elements in place. Next, we have been hearing of these reforms at least since Nawaz Sharif Mark I, with all the governments in between promising the same and the World Bank and the Asian Development Bank financing expensive consultancies, without seeing any traction. Finally, 18th amendment and the judicial UDI have left the federal government with a shrunken policy space. Add to the mix an atrophied civil service and you are left wondering if Islamabad can swing it.
Incidentally, what were the first generation reforms? What is in this budget, and for whom? No, it is not a budget of the elite by the elite for the elite. It is not a budget for the poor either: they are unlikely to see more jobs, lower prices, affordable housing, or cheaper energy as a consequence of this budget - and we know 'trickle down' doesn't work. For the indigent there is a bigger outlay under BISP but it won't seriously impact the pittance they get.
Flexibility and discretionary powers seem to define this budget. The Accountant had to over-pitch receipts to create space for political demands. But he is shrewd enough to put the real or phony receipts under expenditure heads that are for him to control- to calibrate outflows with inflows.
What seemingly worries the Accountant is the election year intensification of the increasingly adversarial financial relations between the Federation and the Provinces. We are almost certain to hear much louder noises on delayed and lower transfers from the divisible pool. Then there is this matter of provincial surpluses that allows Islamabad to throw up a contrived (smaller) fiscal deficit. It will be hard to hold the Provinces to the 'incentivized agreement' to show savings in a year when they would be just as compelled to loosen the purse strings.
Quite amazingly, the budget doesn't look overly bothered with the external sector, despite the escalating trade deficit. Other than the continued zero rating of the five export sectors there is nothing in it for exports, except negatives - and the Accountant taking credit for slippage this year being lower than last year!
About ten days before the budget the Ministry of Commerce invited the usual suspects to a pre-budget seminar. Apologising for our inability to attend (utility of such seminars, full of piety and declamation, wasn't our only excuse - by now the budget had been all but printed) we empathised with the Commerce Secretary: there was little he could do for exports. The essentials of export revival (indeed trade policy) - supportive industrial and investment policy, fair exchange rate, pro-export import duties, and a fair regime to compensate for 'external costs'- no longer belong to his Ministry, which should now be renamed Ministry of Trade Fairs, as that's all they are left with.
The long held-up refunds got only a perfunctory treatment at the hands of the Accountant. The exporting community had been asking for the abolition of the export development surcharge (0.25% of export proceeds), which finances everything but export development. What they got was a 0.25% increase in export (presumptive) tax. They had asked for a reduction in anti-export bias caused by high import duties. What they saw was a slew of regulatory duties. They had pointed out the lower costs of their competitors. What came was an increase in minimum wage, unmindful of its impact on our labour intensive exports; or how others can dodge it but not the exporters living under stringent social compliance rules set by the buyers.
Farming community apart, this budget is for no one in particular - neutral-negative, as the commentators would say. At least superficially, it is for growth without being fiscally irresponsible. But does it have legs - to meet the stated targets of 6% GDP growth, 17% investment to GDP ratio, revenue receipts of Rs 4.33 trillion?
More importantly, what happens if FDI and Remittances follow the path of exports? At least one estimate already pitches our borrowing needs at over $8 billion. Perhaps the Accountant believes more in borrowings than exports. He certainly believes in life after debt.
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Copyright Business Recorder, 2017