It is not easy to try and convince the armed forces to reduce defense spending, or to place a greater tax burden on powerful political lobbies like the agriculturalists. Such attempts would be met with a storm of resistance and counter-arguments

It is unfortunate that when push comes to shove, and governments of resource-strapped countries are compelled by their international financiers to demonstrate fiscal discipline, funds allocated for development purposes become readily available scapegoats to demonstrate the national resolve to curb unsustainable spending.

This cut in development allocations occurs despite the fact that there are numerous other routes available for governments of countries like our own to demonstrate economic prudence. Rationalizing the amount of money allocated to different forms of expenditure remain valid options in this regard. But it is not easy to try and convince the armed forces to reduce defense spending, or to place a greater tax burden on powerful political lobbies like the agriculturalists. Such attempts would be met with a storm of resistance and counter-arguments.

Instead, it is much easier to reduce plans to undertake future development schemes, the impact of which will not be felt by anyone else but the hapless masses. However, the long-term impact of such seemingly easier routes to lessen expenditures on major stated goals like trying to achieve universal education and a healthy and productive workforce remain significant. This is because no country can hope to progress without adequately investing in its people, including those who are too dis-empowered to make assertive demands for their basic rights.

Discounting such essentials however, our policy makers have continued to conveniently cut development spending whenever faced with economic woes. This is what has happened during the past decade, which has been termed by analysts as ‘the lost decade for Pakistan’. Although the past few years saw a visible increase in development allocations due to economic growth, recent events have again led Pakistan’s economy into dire straits. It was, therefore, not surprising to see the recent federal government move to drastically cut the Public Sector Development Programme (PSDP)1.

This year the PSDP has been raised to Rs 663 billion in the budget for 2010-11 showing an increase of 30% as against the revised estimates 2009-10 at Rs 510 billion. Special Programme has been allocated a sum of Rs 30 billion in PSDP 2010-112.

The Planning Commission has removed some 484 projects worth Rs 584 billion from the development programme of the federal government under its new resource allocation strategy for the Public Sector Development Programme (PSDP).

Earlier, the Planning Commission was handling 1,905 projects with throw forward of Rs 3.057 trillion and after its rationalization, the total throw forward had been reduced to Rs 2.509 trillion and projects reduced to 1,421 in 2010-11.

This has been done while developing a growth strategy aiming at productivity through economic reforms. The new strategy seeks to improve management of public resources, improve management of the PSDP and restructuring of public sector enterprises and their privatization.

According to a Planning Commission report, the government had decided to manage infrastructure development through better-managed PSDP. Under the PSDP rationalization, the government had reduced the PSDP throw forward by Rs 548 billion with reduction in PSDP projects by 484 projects3.

The similar situation of economic deterioration on the name of better-managed Public Development Programmes, which compelled Pakistan to seek a $ 7.6 billion standby IMF loan last November as it grappled with a 30 year high inflation rate and fast-depleting foreign exchange reserves. Fears of an anticipated reduction in public spending when our policy makers opted for the IMF loan have now proven justified.

While there is little question that Pakistan needed, and still needs, help in meeting its financial obligations, critics continue to question whether the IMF terms and payback conditions make it a desirable source of support. The government has so far failed to secure adequate aid as compensation for fighting terrorists. Additional funds are vital to consolidate the economy and adjust policies for pro-investment activities. But taking on more loans from international financial institutions may not be the best answer.

If other countries do not come to our help, there is no other choice but to try and generate more resources internally. A commitment to increase the ratio of tax to gross domestic product merits serious attention.

In comparison to international standards, Pakistanis do not pay an adequate share of their income to help support expenditures of the state. But instead of piling up new taxes on existing taxpayers, it is about time to incorporate untapped sectors like agriculture under the tax net. Government should also try and convince the armed forces to reduce defense spending. Simultaneously, the government must also consider how it can demonstrate its ability to effectively utilize additional revenues obtained through taxation for the welfare of the nation as a whole.

References:

  1. Dawn Lahore, Saturday, November 20, 2010
  2. Budget in Brief 2010-2011 Finance Division-Gov of Pakistan
  3. http://www.dailytimes.com.pk
  4. http://finance.kalpoint.com/weekly-updates/editors-pick/cut-in-psdp-may-...
  5. http://www.brecorder.com/section/1/63/1114362:psdp-federal-component-rs-...
  6. http://www.dawn.com.pk