Budget 2006-07 got only a lukewarm welcome on Tuesday as unlikely to boost economic growth significantly nor narrow a widening gap between rich and poor despite a massive increase in spending.
Minister of State for Finance Omar Ayub unveiled a 1.35 trillion rupees (22.5 billion dollar) budget on Monday that earmarked 415 billion rupees for development spending in an effort to improve infrastructure and help the poor.
Economists hailed the 38 percent increase in development spending, designed in part to help the country recover from last October’s devastating earthquake, and which the minister claimed would create 400,000 new jobs.
At the same time, however, they voiced concerns over whether the extra spending in the year to June 2007 will really deliver the promised benefits and a 7.0 percent growth target.
The minister said the economy slowed to 6.6 percent growth in the current year, down from 8.6 percent in the year to June 2005.
Masood Qazi, professor at Karachi’s Institute of Business Management, said he doubted whether the government could ensure that public sector agencies spend the funds effectively.
“One has doubts over the government’s ability to utilise it effectively as historically we have a very poor record” of building and developing public services.
Abid Sulehri, deputy chief of the Sustainable Development and Policy Institute (SDPI), said corruption and a lack of co-ordination among agencies were barriers to a successful implementation of the funding.
“The government has made rosy promises as the budget comes ahead of elections in 2007,” he noted.
He said the increased spending could also increase the budget deficit, put at 4.2 percent of Gross Domestic Product, “which may inflict economic (harm) on poor segments of the population.”
The budget promised a 15 percent increase in salaries for public sector employees and a 20 percent increase in their pensions even as Ayub promised to slash inflation running at 13 percent and unemployment at 9.0 percent.
In an attempt to bolster agriculture, which employs 45 percent of the labour force, Ayub announced the withdrawal of import duties on tractors.
The government also set a higher tax collection target of 835 billion rupees (13.92 billion dollars) compared to 704 billion rupees.
However, Qasier Bengali, a professor at Karachi’s ZBIST University said these initiatives were not enough to help the millions of Pakistanis living in poverty and instead, the government was creating two economic classes.
“They have created two Pakistans — one for those having a Westernised lifestyle whereas a large segment of our country has (not enough) to eat, to shelter their family and pay even bus fares,” he said.
With more than 25 percent of Pakistan’s 150-million people living below the poverty line, economists also questioned government claims that poverty has been slashed by seven percentage points in the past four years.
“There is no precedent in the world that poverty has been reduced in such a short time and to such a huge extent,” said economist Asad Saeed.
“Our production capacity is not increasing and production activities should be spurred but the budgets (have) failed to generate such activities,” said Bengali of ZBIST University.
Growth of large-scale manufacturing slowed to 9.0 percent for fiscal 2005-06 as against 15.6 percent the year before and a record more than 18 percent for 2003-04.
“Economic disparities between rich and poor have already been increased to an alarming extent as we see at one side an individual with million rupee monthly earnings and hundreds of thousands with a mere 1,500 rupee income,” Bengali said.