This year’s budget, presented in the midst of political uncertainty, especially in the shadow of the lawyers-led long march, as well as in the absence of a unified visionary leadership and prepared with the help of a mixed bag of experts, could hardly be expected to overcome either the enormous economic challenges or meet the high hopes for change raised by the 18 February elections.

The challenging task of preparing the current budget was shared by two former finance ministers Mr Ishaq Dar and Mr Naveed Qamar but, after the former resigned, it fell to the latter’s lot to finalise it. Mr Dar had been preoccupied with attending the IMF-World Bank meetings and preparing a white paper on the host of fiscal, financial and balance of payments problems created by the strategically flawed policies of the three-year-long Shaukat Aziz regime and the tactical inaction by the caretaker government headed by another Citibanker, which created a mayhem in the economy.

While Mr Dar was engaged primarily in mending the fragile and faltering economy through improving investor confidence, the midstream change to Mr Naveed Qamar presented the PPP, which had reluctantly foregone the economic ministries to accommodate its coalition partners, a welcome opportunity to focus on its populist agenda — especially to counter the unfavourable effects of its feet-dragging on the judges’ restoration issue. His task became even more challenging, as in addition to repairing the wrecked economy, he also had to deal with relieving the burden of the poor who were groaning under unprecedented rise in inflation especially in the basic wage goods, such as food, fuel, transport and housing.

While the past regime’s ingenuous window dressing of its macroeconomic performance came home to roost only recently, the comeuppance of its distributive policies had been apparent for much longer and was treated cavalierly as an acceptable cost of growth – a fallacy which brought the regime’s downfall.

Whether by incompetence or by design, the previous regime also failed to make appropriate infrastructure investments, especially in water and power, which is now manifesting itself in critical shortages of supply of food and fuel, exacerbated by a global inflation. By delaying the necessary fiscal and monetary adjustments in light of prevailing domestic and global economic environment, the problems were further aggravated. The decision to address these issues was deferred, until after the impending elections in the hope that it would help it in winning the elections or, if that didn’t work, it would put pressure on the new government not to deviate from the political and economic policies of the Musharraf-Aziz regime. All these factors created serious multiple imbalances in the economy, which could hardly be addressed in a single year’s budget, hurriedly put together in the midst of a political maelstrom whose strength and direction remain unknown.

The present budget, therefore, can best be viewed as a holding operation until such time as the political horizon gets clearer and a comprehensive economic strategy to obliterate the deleterious effects of the elitist and inegalitarian policies of the Musharraf era can be articulated. The best it has been possible to do in the budget in order not to disappoint PPP’s core vote bank – which it may need to tap into once again in the not too distant future – are some welfare measures which strongly smack of tokenism and are incapable of solving the immediate problem of food inflation facing the poor, much less the basic issues of growth, poverty and inequality, which need a much more concerted and organised effort than marginal changes in the past poverty alleviation programs.

These measures, such as the Benazir Income Support Card Programme to supplement the incomes of those unable to cope with the food inflation and the 20 per cent increase in the “basic” salaries of government servants and pensions and a number of employment-generating measures, which are largely a repackaging of old schemes which have not been successful in the past.

Not only Rs1200 (or less than $20) per family per month or about Rs200 (or about $2) per person per month woefully inadequate by any reckoning, the number of families covered and the mechanism of reaching the targeted families (3.3 million or about a third of those below the poverty line) seem to inadequate to alleviate the suffering of those now threatened by the menacing increase in the prices of food and fuel which are unlikely to stop any time soon.

The hope to contain inflation through monetary policy is illusory under the current circumstances. The only way to protect the poor seems to be through raising their wages commensurately with their cost of living and enhancing their entitlements of essential commodities. The process of monetization and financial liberalization has gone too far and has affected the poor who work mostly in the informal sector adversely, while the rich whose consumption of the food and other essential items is relatively small, are much less affected by the current wave of inflation.

In situations like this, even developed countries resort to rationing and non-market solutions. While the bureaucratic machinery to administer them is weak and susceptible to corruption, it can be reinforced by involvement of the civil society and NGOs in identifying the target groups at various levels. One hears a lot about public-private partnerships, but not enough of public-NGO partnership, which could be critical in reaching out to the poorer sections of the population.

The budget’s two other main objectives have been its attempt to reduce the fiscal and current account deficits to manageable levels and to check the precipitous decline in the growth rate of the economy, which has slipped below six per cent for the first time in the last five years and is projected to go down further in 2007-08.

For achieving the first objective, a number of proposals to reduce subsidies and non-development expenditures and raise taxes (mainly indirect) have been proposed, which are likely to be debated and contested by the different interest groups affected by them.

In general, the budget has been, in keeping with our elitist ethos, it has been obliging, if not generous, towards the privileged, by asking for token sacrifices (e.g., in terms of increase on customs duty on cars and other luxuries) and big breaks as in deferring the much-anticipated capital gains tax, while being tight fisted, if not callous, towards the poor, by giving them token concessions and asking them to swallow the IMF-mandated increases in the price of oil and in the GST on electricity and gas.

An analysis of the incidence of the various increases in taxes and reduction in subsidies leaves no doubt about the configuration of the losers and gainers. It is unlikely that the budget will have any significant effect on the rising income inequality. Neither is likely to prevent a substantial increase in the incidence of poverty.

As for economic growth, the budget’s emphasis is on the agricultural sector, whose performance continues to depend on the vagaries of the weather. There is undoubtedly a need for increasing productivity and overall output in order to cash in on the secular rise in agricultural prices stemming from a host of demographic and geographic growth factors and to protect ourselves from food insecurity.

However, in promoting agricultural growth, its distributive consequences should be kept in view by making small farmers, tenants and landless labourers equal partners in agricultural growth. Investment in rural infrastructure such as roads, irrigation channels, solar energy, silos, schools and health centres would not only increase employment opportunities but also enhance land productivity.

While the rise in the procurement price of wheat will be a big incentive for production, part of the increase in incomes of big farmers should be channelled into infrastructure investment which would create employment and benefit small farmers and the landless labourers as well.

The industrial sector has always received more attention in the budgets, because of its importance in promoting exports. However, it has failed to diversify itself and become the dynamic engine of growth it once was.

Unless investments in new and dynamic industries, such as electronics and information technology, are not undertaken, the industrial sector will continue to exhibit low growth rates and remain a drag on economic growth, especially because of its high reliance on imported inputs. The government needs to adopt a new industrial strategy for diversifying the industrial and export base.

A welcome feature of the new budget has been the announcement – not yet implemented – that the defence budget will be spelled out in some detail and subjected to parliamentary oversight. The last eight years have made the military the centre of political debate. It has been called a state within a state and many of its activities in the economic field, especially real estate and industrial units, have lacked transparency and have been beyond the purview of public scrutiny.

In view of the severe resource constraints that the country is facing, the military should offer themselves to be subjected to public scrutiny. In particular, the question of the shifting of the GHQ to Islamabad, should be made transparent and subjected to parliamentary debate.

The new budget has been constrained by many political factors. However, the main limitation on the real space for making radical economic policy changes by the present government is the insistence that the economic policies pursued by the last regime should be continued. “Continuity of policies” has almost become a conditionality for the transfer of effective power to the newly-elected regime.

In case of continuity of policies, the IMF and the World Bank, who have already started shedding crocodile tears about the rising inflation of food, fuel and other commodities and the burden they are imposing on the developing countries, will regain their influence in our policy corridors.

Very soon they will start concessional (read addictive) loans and grants with ever new conditionalities to “save” us from this new external shock created by their market-friendly (except in their own protectionist agricultural backyard) policies and liberal financial policies which help to satisfy the developed world’s voracious appetite for fuel and cheaply-manufactured industrial goods from developing countries.

If the government is at all keen to initiate measures which would signal a break from the past, it needs to take the matter of reorganization of the Planning Commission and the Economic Advisory Council and other instruments of policy-making and research, much more seriously than it has done so far. Ad hoc decision-making and frequent visits to and from Washington are not the solution.

e-mail:syed.naseem@aya.yale.edu