Thursday, 25 June 2009

On the Pakistani budget 2009-10

Missed another opportunity for change and betterment!

I hate to say “I told you so!” But I did. This is a practical budget made by practical economists and wannabe “policy wonks”. Off course egghead economists were kept a long distance from it. What did we get? Same old! Same old! Same old!

Reviewing the last 3 budget speeches even the construction of the speech, the phraseology is the same. Thanks to Microsoft, the template remains the same! All we require is some editing and some new numbers.

What are my criticisms? Let me list a few.
1. There is unanimity that we are in the middle of an existential crisis. We have a failed state that has brought us into a civil war with 2.5 million displaced persons. All the budget talks of is that 50 billion is going to be spent on the displaced people.
Governance which has caused our problem is the last item on the agenda and comprises of only some salary increases and contributions to a donor project—“access to justice”. This project reputedly is not very productive anyways.
Is that all that needs to be fixed in a failed state. What about a civil service reform with monetized perks? What about a new devolved police service answerable to the community? What about a devolved and quality driven education system independent of the education ministry? What about better training for better governance? Any investments into communities?
2. After a long time our growth rate is actually negative in per capita terms, balance of payments seem to be out of control, inflation is stubborn and the fiscal situation despite the fiscal responsibility act is not really under control. What is on offer here? Virtually no analysis of the situation, leave alone any ideas to address them. Instead we have the usual budgetary trick that has been used for sixty years stray numbers on allocations for agriculture, industry and an intended increased PSDP allocation. Any new sectors that can be opened up through deregulation?
3. The PSDP allocation as all economists of any merit have been arguing is full of flaws where cars and housing for the powerful and prestige projects in Islamabad and Lahore take all the money. Let us stop calling this development funding. It is time for a serious review of our earlier PSDP and the Planning Commission.
4. The federal government has for years denied devolution despite the law and the constitution requiring it. Part of our governance problem lies in the fact that excessive centralization has weakened public service delivery. Nothing on that! NFC again gets the customary paragraph when the federation is severely strained. When will these practical people learn that politics is the glue that holds us together and do the NFC.
5. In these difficult times the budget speech which is an important moment for the leadership to show their helmsmanship, says nothing interesting or new about a new economic strategy that will put us on a sustainable growth path. Instead we have what we have always had: some handouts for the poor (more charity not opportunity); programs for agriculture (dairy, model villages and more extension—how often have we heard that –do they not even have new lines?); more subsidies for cars (how much is enough?); and this strange return to DFIs. In the midst of our biggest economic crisis, is this all?
6. For industrial development, we are creating an enterprise development fund, a venture capital fund and a DFI. Do we learn nothing from history? All our failed experiments with NDFC, BEL, IDBP etc. Or is it “jobs for the boys” again! A better strategy would be to review the EDF and the Trade Development Authority with a view to closing them down!
7. Amazingly, though we are looking for handouts, the budget envisages no expenditure reduction measures. Numerous redundant government departments (See Furrukh Slaeem News Jan 4) remain on the books.
8. Nowhere is there any mention of government efficiency and measures to improve that. I guess the implication is that the government is extremely efficient. Does anyone agree? The international world does not. We are among the lowest in every list from corruption to Property rights! Should the government not be addressing its efficiency in its own budget?
9. We are told that our tax GDP ratio is low, yet no real tax measures are announced! A mere change in name for the existing petroleum tax and a minor increase in the registration fee for real estate. Is that all?
10. Without going into details, I found it strange that the investment energy and new education projects was almost the same as the government contribution to the investment fund for “jobs for the boys”!

Very briefly how an economist would do the budget. She would determine the role of the government and focus the on improving government productivity in all three branches –executive, legislative and judiciary. Then the budget would announce a multiyear program of reform to improve governance through streamlining government (close down departments and agencies and devolution) and clear measures (monetizing perks) and investments (better training, use of technology, improved processes) in improving productivity. Reform would be the main activity of this budget--a mainstream activity fully transparently budgeted. In actual fact, poor governance is the biggest drag on the economy. To make it the ninth point on the nine point agenda is a travesty. But then the nine point agenda is neither serious politics nor serious economics.

The economic strategy underlying the budget would depart from past failures. The sectoral focus on agriculture and industry has not paid off. Why harp on the same theme? Focus instead on building better markets. Domestic commerce which is the leading sector even today and not mentioned in the budget once. Why? Is it because it is full of the small guy—retailers, wagon drivers, chaiwallahs and petty tuck owners? Of course practical men do not think they engage in “value addition”—a very strange term. Only men in air conditioned offices and golf course add value?

But even for an obvious sector such as domestic commerce, an economist would think carefully on what the government could do to help the sector before committing budgetary resources. The last thing a good economist would do is committing to a new government agency without a good sense of purpose and clear monitorable goals. Increased bureaucracy is neither economic growth nor good governance!

It is time to end amateur economics and bring some serious economic thinking into the government. But then our seriousness about economic thinking is obvious from the fact that the government has not been able to appoint a permanent (not acting) Chief Economist for the Planning commission for the last 3 years. Not even a banker would take that job!