Pakistan juggles an impossible budget

ByTara Kartha

The article is authored by Tara Kartha, director (R&A), Centre for Land Warfare Studies.

Pakistan’s cities are sizzling under a heat wave, much like India. But the political heat is on, as Prime Minister Shabaz Sharif presented the budget, giving the signal for national dismay and threat of serious protests. Its also likely to be a time for strong political theatrics as coalition partners threaten to boycott the session, and then relent as its an open secret. Pakistan doesn’t have much choice on most of the budget’s most unpopular aspects, like taxation. But it did have a choice of sorts, and that was to refrain from increasing the defence budget, at a time when the crunch on the common man is already biting. It chose not to make that choice. That’s going to cost.

The run up to the budget session was not propitious. The opposition launched their protests just as the Finance Bill was presented, which was expected. What created chaos was the last-minute protest by coalition partners the PPP (Pakistan People’s Party) which threatened to boycott the session at the last minute. The finance minister remained standing for nearly 20 minutes as the drama unfolded, and only subsided when the former finance minister Ishaq Dar promised to address the ‘grievances’ of the partner. That’s theatrics, since no political head wants to be associated with such an unpopular budget. Even more hilarious was that the budget papers were not kept on the desk because the government was apprehensive that it would be used as projectiles!

That was hardly surprising. There is much in the budget for people to get violent about. For one, its set itself a challenging tax revenue target of 13 trillion rupees ($47 billion), a close to 40% jump, which is going to mean that the man on the street and everyone else is going to find the going even tougher. Pakistan’s sponsors have been trying to get Islamabad to raise taxes for years, without success, but it ends up spending nearly double its revenue, leading to not just deficits, but also a complete breakdown in spending on infrastructure. Its taxation structure is also skewed, with more taxes on exports – which means firms prefer to sell inside the country discouraging competitive products, not to mention a foreign exchange crisis. The present budget proposes to increase such taxes on exports including on textiles, that is a major source of revenue for the government. That’s odd and bound to be resisted. It also refuses to tax agriculture, since most of the big politicians are land owning families. A report notes that the state of Punjab in Pakistan with a population of 100 million, collects less urban property tax than the city of Chennai in India, which is home to about 10 million people. The present budget makes a big rise in the tax target with 48% increase in direct taxes and 35% hike in indirect taxes. Non-tax revenue, including petroleum levies, is seen increasing by a whopping 64%.That going to be another huge blow for the man on the street. Red lights ahead. Meanwhile the parallel economy, estimated at 44%t of nominal gross domestic product (GDP) escapes unscathed due to the absence of a proper recording system.

The defence naturally goes up. A Prime Minister who travels with the Army Chief at his side is hardly likely to be able to even freeze allocations. The budget goes up from a (stated) PKR 1.8 bn to PKR 2.2 bn not counting an increase in pension as well from to above a billion Pakistani rupees. It is well known that Pakistan’s actual budget is well hidden among a range of other heads. Meanwhile, happily, the salaries of government employees has gone up considerably. The perks enjoyed by Government servants has been a source of annoyance particularly in Pakistan occupied Kashmir, where residents pay tax to a Parliament that it is not represented in.

Which brings the whole to the issue of the provinces. As per the budget. Balochistan – which is the largest province and home to the gas and resources that holds up the state – gets a mere 9 per cent of the total share for provinces. While Punjab gets upwards of 51%. Khyber Pakthunkwa, where Imran’s party reigns, gets by with a mere 14%. All this is based on the very convenient clause that the cake with priorities population ( where Punjab easily wins) as against revenue generation. Not a word about the poor Kashmiris. Their fate will be decided by diktat. In India, Nirmala Sitharaman presented the Kashmir budget in Parliament recently.

Pakistan’s biggest danger comes from climate change. As the Economic Survey notes, agriculture has been robust, and contributed heavily to an improvement of the GDP growth to 2.38% – which shows a recovery of sorts. But this recovery is due to the rise in wheat and rice production, both highly water intensive crops. From an abundance of water, it is now the 15th most water stressed country in the world, and may become water scarce by 2035. Its recurring floods are likely to become an annual phenomenon, and thereby impeding all its projected goals. The problem? That Climate crisis is also India’s biggest problem as we struggle with a heat wave of unprecedented proportions. The lesson? To get going in the world, Pakistan needs to throw overboard its terrorist policies in both Afghanistan and India, and work hard to earn the trust of all neighbours, so that all work towards finding climate solutions for the vast amount of territory that is South Asia. And with that kind of an initiative, trade and trust will follow. Remember that second commandment in the Bible, love thy neighbour as yourself”. Not the best advice perhaps for a country that burns even its own religious affiliates, but none the less, its there, and in almost all religions. Better to heed it before another flood of biblical proportions arrives.

The article is authored by Tara Kartha, director (R&A), Centre for Land Warfare Studies.