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Reality with populist gimmicks

Despite being soft on new taxes, the question is will this be easy to be swallowed by an embittered population, hard-hit by a grave energy crisis, high inflation, rising cost of living, a very poor law and order situation and a fast-deteriorating safety to citizens and their property? Are there any takers? Hardly!

The national chaotic scene was repeated in the Parliament itself while Finance Minister Dr Abdul Hafeez Shaikh presented the federal budget for fiscal year 2012-13 that starts on July 1. Throughout his 25-minute budget speech, government and opposition members engaged in fist fights, raising slogans against Zardari and Gilani’s corruption and asking them to quit their jobs, especially the Prime Minister, already convicted by the Supreme Court for a refusal to crack down on corruption and bring home Zardari’s $60 million, illegally retained in Swiss banks.

Despite the unprecedented, televised uproar, Dr Shaikh presented the Rs2.9 trillion budget, which estimates gross federal revenues at Rs3.23 trillion. The government will borrow Rs971 billion from banks and non-banking institutions to cover its budget deficit.

The finance minister’s goody bag consists, largely, of 10 items: medicines will be cheaper; salaries and pensions of government employees will get a 20 per cent raise; highest tariff duties and customs rates comes down from 35 to 30 per cent in several imports; incomes of individuals will be tax-free up to Rs400,000 a year; sales tax on black tea comes down from 16 to five per cent; federal excise duty on 10 items, including base lube oil, lubricating oils, filter rods and skin care products, abolished, and on cement reduced; tax on hybrid electric vehicles and batteries reduced by 25 per cent; subsidies will get Rs209 billion and technical training will be provided to 100,000 jobless youth. On the other hand, citizens will also be bitten by new taxes. All property sales will pay a 10 per cent capital gains tax. Additional taxes have been levied on cigarettes and steel products. CNG will be more expensive.

But, in order to raise exports, the government’s export development fund gets Rs10 billion. With a view to promoting the construction industry, which itself helps growth of 38 types of downstream industries and activities, incentives have been provided. To promote the use of scrap rubber and shredded tyres as a substitute of fuel by manufacturing plants, such as cement, customs duty on scrap of rubber and shredded tyres comes down from 20 to 10 per cent.

The finance minister, despite the setbacks in the outgoing fiscal year 2011-12, which ends on June 30, is keeping his chin up while setting projections and hopes for financial year 2012-13. After admitting that all economic indicators and targets fell short in fiscal year 2011-12, he is still hoping against that the next financial year will come out better for the people.

“The government has taken difficult decisions to maintain macroeconomic stability and bringing prosperity to our citizens, in particular, providing relief to vulnerable segments of he society,” he said.

“Notwithstanding these challenges, the economy remained resilient and performed better as compared to the global output forecasts for most developed and developing economies,” he insists, and says growth moved higher every year in the last three years.

The growth for financial year 2011-12 is estimated at around 3.7 per cent, against three per cent in 2010-11. Exports reached a historic peak last year of over $25 billion and this trend has been maintained during the July-April period of 2011-12. The growth of agriculture was 3.1 per cent, against 2.4 per cent in 2010-11. Manufacturing recorded a growth of 3.6 per cent compared to 3.1 per cent in 2010-11. But large-scale manufacturing growth, included in the manufacturing sector, was as small as 1.1 per cent, against one per cent in financial year 2010-11. The services sector grew by four per cent as against 4.4 per cent last year.

But, the sad story is that real investment declined from 13.1 per cent of GDP in financial year 2010-11 to 12.5 per cent in fiscal year 2011-12. Foreign direct investment declined to just $668 million from $1.293 billion in 2010-11. This mainly happened on the back of a continuing war on terror, poor law and order conditions, and an uncertain political situation.

A day before the announcement of the national budget for 2012-13, the Pakistan rupee fell to Rs94 against the dollar. The greenback was close to Rs62 when the present government had come into power in March 2008. It stays on the down-path due to bad external balances and depleting official forex reserves.

But, Dr Shaikh says: “We have given a budget that will build hope and lay the foundations of a better tomorrow in which not only economic stability will be maintained, but growth will be accelerated. Our young population is our assurance for a strong and prosperous Pakistan, provided we can create job opportunities for the use of their capabilities. Growth is the answer and this will be or main focus during the year.”

Views expressed by the author are his own and do not reflect the newspaper’s policy.