Budget: a futuristic story

Pakistan’s Budget 2022 has to be a convincing story for the nation that beyond the clouds the sun is shining. It has to be a story that unveils, in-order of some priority, the necessary repair of the country’s finances and a futuristic outlook for rewiring the economy. It has to be a credible story by demonstrating an honest understanding of the global economy and Pakistan’s economic and social context. Lets us try and put the pieces of that story together.

The international outlook, while still quite uncertain, has somewhat improved with progress of vaccine rollouts and major fiscal policy support. Global GDP is now expected to grow by 6 percent in 2021. In Pakistan, a nascent economic recovery of 3.94 percent growth in GDP is emerging in FY21, from a negative growth in FY20. However, the fiscal framework remains under stress with higher than budgeted deficits and a resultant high debt-to-GDP ratio. The external account is witnessing a rise in imports even with the small economic recovery, which is being mainly offset by record remittances and minor pickup in exports.

Budget 2022 must tirelessly build a new fiscal framework that extends support to the economy and public health services in the short?term, while ensuring the sustainability of our public finances in the medium term. Setting the stage with an appropriate revenue strategy, it is equally important to put forth a forward looking expenditure framework. Our revenue story should convince the nation that there is significant improvement on the administrative side and policy simplification that creates a sound platform for sustainable growth. On the flip side, repair of expenditures on the current side requires a serious pension and subsidy reform and a rethink of containing the rising interest payments. The development budget must also show a realigned focus on completing high impact projects along with a strategy of capacity strengthening to absorb the intended Rs900 billion spending for FY22.

Servicing the rising debt takes away resources that could have been invested in infrastructure which frays our social solidarity. Budget 2022 should at the minimum create a hope that we are making meaningful progress in the implementation of our structural economic reforms. Our structural reform agenda must be articulated in an economic reconstruction plan, and must remove the brakes on growth. The nation must believe that we are fundamentally altering the structure of this economy by lowering barriers to entry, broadening ownership patterns, raising productivity and lowering the cost of doing business. Ideas highlighting an asset management programme of the public sector must be visible and privatization monies should show a serious commitment to get some state-owned enterprises offloaded. A tall order indeed!

Improving public-sector spending can lay the foundations, to some extent, for Pakistan’s economic game plan, engrained in moving gears to growth. But it is businesses, big and small, that keep the economy moving. Pakistan’s manufacturing sector will be a key driver of future jobs and higher wages.

That is why we must commit to the 5.2 million small and medium enterprises to grow, to expand manufacturing activity and create jobs across six priority areas – including medical products, logistics and horticulture, on the domestic front, and light engineering, fisheries, and information and communication technology and allied services, on the export side. As they strive to recover post-Covid, we need to see more funding to help small businesses and farmers expand and diversify their export markets. They are at the heart of every local community.

Agriculture focus in Budget 2022 must revolve around productivity, funding high priority projects and restricting the role of the government. Support for precision agriculture with tax breaks to firms which promote such an effort is essential. Monies must fast track implementation of the Agriculture Emergency Program worth Rs300 billion launched under the PSDP in July 2019. The Cotton Research and Development Project based on the Cotton Development Endowment Fund must be pushed by allocation of adequate funds. Budget 2022 must exhibit a plan to increase research and development spending for agriculture from the current 0.18 percent of agriculture GDP.

Recognizing secular trends helps us prepare for the future. Global economies are being shaped by three tidal waves: one, the type of digital infrastructure that allows businesses to scale and benefit from economies of scale; two an exponential growth of innovative new technology, which is driving disruption; and three Web 3.0, the next generation of the internet, which will bring explosive growth in areas such as finance, data and money. The underlying themes of spending and incentives for firms must recognize the futuristic global trends beyond traditional sectors.

Building a Pakistan of tomorrow is about investing in these areas and incentivizing them to grow. Digital infrastructure and digital skills will be critical for the competitiveness of our economy, creating massive opportunities for growth and jobs. We must envision a cluster of industries which are all about innovation and about taking our society to the next level. Incentives for exploration in the ground and seas should also see an orientation tilt. Although after the 18th Amendment this is largely the purview of provincial governments, an intent of federal government can create the right push.

As a country we must put our hearts and minds in innovation and research to push productivity in every sphere of life. A growing population of above 2 percent annually requires us to do extraordinarily well in putting together a clearly articulated budget document. One hopes a read of Budget 2022 will feel like a strategy securing economic recovery and setting Pakistan up for the future. The 230 million citizens of the country are looking forward to a budget document that builds their confidence for a prosperous future.

The writer is former advisor, Ministry of Finance, Government of Pakistan.

Email: [email protected] Twitter: @KhaqanNajeeb

Originally published in The News