A budget for the wealthy

The Pakistan budget for the coming fiscal year 2005-06 is a budget for the rich. It threatens to reinforce existing inequalities in society. It can generally be called business friendly but it fails to meet the expectations of the common man.

While the economic growth rate of 8 per cent is commendable, much of the growth euphoria is misplaced. The favourable growth record portrayed by the regime has more to do with good luck than good policies.

Good luck came through timely rainfalls, a generous debt-relief, continuous inflow of remittances and a property boom. It did not come through policies adopted by the regime.

The failure of the regime to formulate policies that could substantively improve the economic situation is the loss of an opportunity for Pakistan to emerge as a self-reliant nation.

Pakistan's economy continues to suffer from fundamental weaknesses, such as a narrow tax base, losses of public sector corporations, an undiversified export structure, stagnation of the manufacturing sector and problems of governance, including the worsening crime situation.

The recent surge in economic growth is fragile, raising concerns about sustainability.

While the economy is expanding, human lives are shrinking, with an ever increasing number of young people committing suicide.

The growth process in Pakistan is elitist and inegalitarian, enriching mainly the rich and the powerful. About two-thirds of the poor in Pakistan reside in rural areas and it is precisely this group that is neglected by the regime.

It is wrong to claim, as the present regime does, that a higher economic growth rate will automatically translate into poverty reduction.

Ayoub Khan's regime made that mistake in the 1960s and paid for it in street protests. Then, as now, economic managers considered growth the end of economic development.

In the 1960s, economic growth enriched the tiny elite, furthered inequalities and laid the basis for Pakistan's dismemberment.

In fact, every military regime in Pakistan generated occasional spurts in economic growth but economic success was largely borrowed and hence unsustainable.

No country can sustain high economic growth without institutional foundations and an inclusive economic process.

The present regime's economic policies marginalise the poorer segments of society. This is evident in the inability to reign in the rising inflation rate standing at an eight-year high of 11 per cent.

The excessively high food prices significantly reduce purchasing power of the labourers, the salaried class and the poor.

And while these inflationary pressures emanate partly from excessive consumption, the poorest segments of society are excluded from these greater consumption possibilities.

In Pakistan the poorest 10 per cent command only a 3.7 per cent share in total consumption.

Since 1996, growth of mean consumption in urban areas has occurred primarily among the relatively well-off: the average annual growth rate in consumption among the bottom 20 per cent and the middle 20 per cent of the distribution was negative.

The regime is to blame

Some inflationary pressures are attributable to higher economic activity but a large part of the blame lies on the regime which failed to import essential food items in time, prevent hoarding and remove other supply bottlenecks.

Worse, the Central Bank paid lip service to controlling inflation in its quarterly assessments.

Sadly, the military regime's economic policies robbed the poor of purchasing power while reducing their prospects of acquiring assets.

The recent property boom enriched the select group of property owners. If acquiring physical assets, such as land, was a hope for the poor, this regime took away even that hope.

The property boom of last year was not just the work of economic forces the private land mafia and speculative pressures were equally important.

The property boom inflated the economy and depressed real sector investment. It exacerbated the housing problem for the low-income families.

The regime neglected to conduct a serious assessment of the economy-wide impact of the recent property boom. Even the newly generated wealth from the property boom was not brought into the tax net.

The perception persists that this was to provide undue relief to retired and serving military officers who are major stake holders in the property business.

In this dark age of runaway inflation, lifting the minimum monthly wage from Rs2,500 to Rs3,000 (Dh155 to Dh185) is insufficient.

Similarly, a 15 per cent rise in the government pay scales is unlikely to relieve the salaried class from rising cost of living.

Even though the poor are struggling to make ends meet and many in the process are committing suicide tragically the unrepresentative regime is planning to import 50 new Mercedes cars at a cost of Rs5 billion (Dh309 million).

This is a shocking insensitivity to the plight of the people who make up Pakistan. On the other hand, the rich are awarded tax and duty breaks such as the reduction of duty slabs on luxury cars.

The budget does propose a much-needed increase in the development budget. However, experience suggests that often less than 60 per cent of the development budget is actually utilised.

Moreover, the development budget is often revised downwards at the middle of the year in the face of fiscal pressures.

Worryingly, inflation can reduce the price competitiveness of our exports in international markets. The tax breaks announced for the textile sector are a welcome step.

Yet they are a temporary breather for an industry facing stiff competition after the phasing out of textile quotas by developed countries.

Unless inflation is urgently arrested, the rising cost of production can quickly erode the competitiveness of our industries.

Moreover, exports failed to keep pace with rising imports giving rise to the spectre of a trade deficit. A trade deficit the excess of imports over exports is not always harmful, especially if machinery and capital equipment constitute a large proportion of imports.

However, currently only about 40 per cent of these new imports comprise capital equipment, suggesting that the trade deficit could be deeply damaging.

Finally, the defence budget was increased by 15 per cent despite the much touted peace process with India.

While the people of Pakistan are prepared to sacrifice resources for ensuring strong defence, it is unclear whether these additional resources can increase the country's defence capability or line the pockets of our unaccounted guardians.

Parliament should be allowed to debate and question whether these resources will be put to effective use. Stories of corruption in various military departments compromise the ability of our defence managers to effectively use these resources.

Benazir Bhutto is a former prime minister of Pakistan