Tag Archives: inflation

Pakistan’s budget: Policy sans public

Raza Rumi
Last week, a former Minister while referring to the budgeting process remarked how the budget documents were accessible to only 3% of the parliamentarians. A lady MNA whom I met after the budget speech was ploughing through the shabbily printed pink documents, looking for the allocations for regulatory bodies and both of us could not find the relevant figures. This should be enough to describe the inaccessibility and obfuscated nature of the budgeting process in Pakistan and several other developing countries.

Executive board-room syndrome
: Lack of public consultation in the budgetary processes is another hallmark of how the executive formulates the national priorities and finances them. Our state considers the people as ‘beneficiaries’ and ‘recipients’ of the wise decisions made in air-conditioned secretariats and donor board-rooms. This is why the economic and social policies are seldom reflective of the will of the people. Pakistan’s deep rooted authoritarian tradition explains this dilemma. But the civilian governments have rarely attempted to change this trend. More often than not, they also rely on the same evergreen bureaucrats. Our present elected government has chosen economic managers who are former international bureaucrats representing the good-old Washington Consensus.

Lack of participation:
Across the globe, pre-budget consultations are exercises seeking public support and inputs for policy. Countries in democratic transition are adopting participatory decision-making processes. There is also a growing consensus that budget decisions need to be subjected to public scrutiny and debate. Earlier, our government organized seminars in big cities and consulted the business, middle classes and other stakeholders to frame the policies. This time last-minute public consultations focused on the VAT issue. Quite obviously, for purely political reasons, these consultations have failed and we have a higher GST rate thereby more exposure to inflation.Development charades: The development allocations at the time of the budget announcement are almost always notional. Invariably these are slashed in the last quarter when fiscal crunch hits the government (40% in the last fiscal year). The new PSDP is Rs 663 billion but it remains to be seen if this will hold. How has it been estimated and prepared; only a handful of people know. The overall ceiling is guided by the NFC award. But, does it address the key development challenges? Perhaps not. Overestimated figures from the Friends of Democratic Pakistan were also factored in the previous years and even this year the allocations reflect what is expected and not necessarily what we have or need.

Lobbies who always win: As before, the big business, the landlords and the security establishment benefits from the limited resource base. The business lobby has avoided VAT at least until October, no mention was made of agricultural income tax in the budget speech and of course the defence budget is higher by 17%. The local vehicle-manufacturing industry will continue to enjoy protection. Much of the defence budget is hidden under the “General Public Services” category as the salaries and pensions are not reflected in the defence category.

Inflation will rise:
Contrary to various claims, inflation is here to stay. Higher energy prices and increased GST will lead to further increase in prices of commodities with a direct impact on the poor and the fixed-income groups. Apparently a study has been carried out to disprove the link between GST and inflation but it is not in the public domain. If and when VAT is imposed, inflation will further increase whether we like it or not.

Saving graces: Three key policies are somewhat promising. First, the focus on energy conservation, by providing 30 million energy savers, is a step in the right direction. The allocation of Rs. 40 billion for Benazir Income Support Programme and lastly the increase in salaries of the government employees are commendable policy decisions. It is not clear, though, as to how far the pay and pension commission’s recommendation was taken into account while finalising these figures.

Sterile debate:
Given the lack of budget awareness, the new gurus of Pakistani conscience have been holding endless talk shows on the budget. The commentary by TV anchors and their ‘political’ hosts is emotional and largely uninformed. Debate is good but spiraling ignorance is something that we must avoid. Similarly, the polemical statements in the National Assembly are intriguing. For instance, the leader of the opposition criticized the increase in government salaries for the adverse fiscal impact on the Punjab government, and at the same time lambasted the government for not doing enough for the vulnerable. MQM’s refrain that electricity should be cheaper in Karachi is also beyond logic.

Pakistan’s democracy is nascent and fragile. However, it is also an opportunity for the budgeting process to be reformed. The government should involve the media and civil society in raising awareness and building consensus on reform. In several parts of the world, accessible materials to increase budget literacy are commonly used. Similarly, it is time that the legislators are made more familiar with the budget process to enhance public oversight. Techniques that track inter-governmental expenditures can help reduce corruption and waste. All of this requires deepening of democracy, civil service reform and the emergence of a responsible media. We need a light year to get there.

First published in The Friday Times, Lahore (June 11 issue)

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THE GREAT RECESSION, THE EUROPEAN FISCAL CRISIS AND LESSONS FOR PAKISTAN. Part 3: The European Debt Crisis

The Exploding Debt in Europe

By Kashan Wali, exclusive to the PTH

 

Wealth cannot be artificially created

Finance in a real world relies on underlying wealth of a society. Governments cannot create wealth by printing money. Print too much money and it will lose its value. A fall in the value of money leads to inflation. Inflation viciously attacks the value of savings of the population. As population loses the stored wealth, the population becomes dependent on the state. State has to pay more now for healthcare, education and in extreme situation, food and shelter for population that is going poorer by the day. Either way, unless the underlying wealth (net output of goods and services produced) does not increase, a country cannot become wealthier.

Let’s say state tries to pull another trick here; it starts borrowing heavily from the investors to boost its cash reserves. A smart market will quickly catch on to the trick as it analyzes the conditions of the local economies to see if this state has good books and stable revenues. If investors decide that the state cannot pay off its liabilities in the future, it will charge a lot more in interest rate to justify taking that excessive risk. Investors may decide not to lend at all to a government running shady practices.

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Pakistan’s economy: Hard times

by Raza Rumi

Two years after the civilian government took office, there are few signs of economic recovery and this does not augur well for the fate of democratic governance in Pakistan. We are somehow doomed to bear the brunt of authoritarian regimes in social and economic terms. By the time a civilian government puts its house in order, the long and short marchers are ready to take over. The story this time has been no exception. Following the trends of the 1960s and the 1980s during the Musharrafian decade, unsustainable growth rates were touted as the raison d’etre for the apparent efficiency of a military regime. It is true that the Musharraf era inducted Pakistan into the globalized economic system, boosted domestic demand for consumer products and attracted huge doses of foreign assistance shortly after the military decided to ditch their erstwhile strategic allies, i.e. the Afghan Taliban. But it left the country in dire straits – bankrupt, politically polarised and mired in the worst inflation of our times.

The signs of economic fatigue and food inflation had appeared during Musharraf’s last year in power. An unprecedented energy crisis also plunged the nation into literal and metaphorical darkness and the global recession caused an economic slowdown all around. Consequently, from the high growth-rate of 6 percent, we were in the lowest growth category, even in the poor South Asia region. A 2.2 percent growth rate implies that our current population increase per annum is untenable. Similarly, the highest ever recorded inflation of nearly 25 percent in 2007-2008 also hit the fixed-income citizenry and the millions of poor, depriving them of basic sustenance. Continue reading

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Govt should do more

Bilal Qureshi

I have noticed strange things in Pakistan during my recent stay there, but two things stand out for me. One, it is the unbelievably weird ability of Pakistanis to connect every bad thing to American and how America with Israel and India is relentlessly trying to destroy Pakistan, but Pakistan is surviving against all odds.

Second, it is the unusual talent of Pakistanis to ask the government to solve all there problems, do more, and more and more, without being specific. For example, prices of daily commodities go up, and the people start repeating the same thing: government should bring down the prices Continue reading

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PAKISTAN: Eid Shopping Marred by Inflation, Fear of Violence

By Beena Sarwar/IPS

Shopping for glass bangles — an Eid must — has been less than brisk this year.

KARACHI, Oct 1 (IPS) – As the Muslim holy month of Ramadan draws to a close, the shopping frenzy around Pakistan increases in preparation for Eid, the joyous three-day festival of thanksgiving to celebrate the end of a period of abstinence, including dawn-to-dusk fasting.

But preparations for the Eid festivities in this predominantly Muslim South Asian nation have been marred, this year, by the twin monsters of escalating inflation and violence.

Inflation, the highest ever in Pakistan at 25 percent, has definitely impacted Eid spending. One young woman, in her late 20s, out on a late night shopping excursion with her husband told IPS that she
normally gets three or four outfits made for Eid. “This year, I only got two. I’ve basically cut down my Eid purchases by about half, because of inflation.” Continue reading

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Inflation at all-time high of 19%

By Tanveer Ahmed

KARACHI: Inflation reached all-time high of 19.27 percent in May [2008], mainly because of growing prices of food items.

The coalition government has already hinted at missing of inflation target of 6.5 percent in the Economic Survey released Tuesday and believed the average inflation settling over 11 percent by the end of financial year 2007-08.

Analysts, however predict the average inflation will be closing at 12 percent or slightly above that in the fiscal year, which will end June 30, 2008.

Data released by the Federal Bureau of Statistics Wednesday showed that food inflation, measured through the Consumer Price Index (CPI), swelled to record 28.48 percent in May, highest in over three decades. Continue reading

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