- Fiscal policies under new budget need to be useful for the poor
Universally, economists and economic managers, while devising fiscal policies have been focusing on economic efficiency aspect, whereas in the face of growing inequalities the weightage should have been given to distributional aspect, upholding moral and social values ensuring welfare of disadvantaged segments of population. Policy makers need to be cognizant of moral perspective of public finance.
According to Paolo Mauro, Deputy Director in IMF, community, authority, divinity, purity loyality and sanctity are important considerations of not only in many non-Western countries, but also among politically influential segments of the population in advanced economies as propounded under ‘moral foundation theory’, which was created by a group of social and cultural psychologists with emphasis on five basic moral foundations: 1) harm/care, 2) fairness /reciprocity, 3) in group/loyalty, 4) authority/respect and 5) purity/sanctity, which are known as building blocks of morality. These five blocks of moral foundation if strictly followed, help devising rational public policies relating to economy and social sector.
As depicted from the views of many of the economists and social and cultural experts, concern for joblessness resultant of devastation caused by Covid-19 over and above already existing apprehensions in this regard initiated by fast move for globalisation and use of advanced information technology and automation needs creating liberalised markets and housing for labour enabling them to move to other places where they can get jobs.
While considering the issue region wise one comes across the fact that particularly in Asian scenario if countries take initiative to broaden the benefits of their comparatively fast economic growth by enhancing their social responsibility particularly making sizeable allocations for primary and secondary education to bridge the gap in education attainments of students from economically deprived families caused by long period of locked downs in educational institutions. This should be accompanied by sufficient cash transfer arrangements under social safety nets program plus reforming labor laws in order to provide greater protection to low income workers for ensuring sustainability of rapid economic growth of Asian countries, quite a number of which have been designated as emerging markets.
Unfortunately among South Asian countries particularly it is Pakistan where it would be Herculean task to regain the lost pre pandemic status of the economy.
No doubt there has been sizable increase in public sector investments consecutively for the last pre-Covid five years and now envisage allocation of Rs.800 billion (for fiscal year 2022-23) for Public Sector Development Programme (PSDP), yet the magnitude of development work to be undertaken and coping with burden inflicted on country’s resources mainly due to Covid pandemic and also due to unforeseen natural disasters like drought conditions, and recent economic shock arising out of surging conflict between Ukraine and Russia, which has worsened inflation situation and also external sector imbalances particularly relating to trade deficit, which has abruptly risen due to steep rise in import bill reaching the level of $59 billion. This has rendered allocations for PDSP insufficient to develop infrastructure needs, particularly energy, water supply and transport related projects, which need to be expanded and revitalised for sustainable economic growth, vitally needed for improving quality of life in the country.
In view of fiscal constraints already being quite sever as depicted from the very low tax GDP ratio, which ranges from 9% to 9.4% in recent years and in the absence of quality fiscal measures, which ensure needed level of savings and investments without adverse impact on current spending particularly social sector related spending, make it impossible for further enhancement in PSDP budget even for critical infrastructure needs. Private sector involvement in infrastructure development has been negligible as until recently construction of roads, dams and development of energy sector has been close preserve of public sector, hence significant structural gaps have emerged that could interrupt economic growth rate momentum for long time to come. Now country finds itself at a cross road where it is to be decided to what extent private sector role be entertained particularly for infrastructure development. The energy crisis in the country and Railways running on loss has already inclined government to invite private and foreign investors to this area. China Pakistan Economic Corridor programmes, which is a collection of infrastructure projects sponsored by Chinese government in 2015 is a great initiative in this respect.
No doubt public private partnership has immense scope for undertaking infrastructure, education and health development projects of the country, but that needs strict monitoring, good governance and a highly competitive environment ( leaving no chances of cartelization in any field of economic activity) for achieving maximum efficiency and giving cost effective services to consumers and government.
In the present scenario when lack of monitoring and good governance are the main factor impeding effective implementation of all development projects, total shift to public private arrangement is not advisable and instead there is need for enhancing the role of public sector for undertaking maximum number of major infrastructural and social sector projects. All utility services related projects need to be under the umbrella of public sector. Privatisation of Karachi Electric Supply with the beginning of current century and miseries brought to Karachiites through frequent load shedding these days is the result of unabated mismanagement by new private owners.
Private hospitals and majority of privately run educational institutions in the country are not accessible to even students from lower middle income families. Economically disadvantaged population in big cities have access only to government hospitals and there too on pretext of non-availability of life saving drugs poor patients have to bear the cost of medicines and other special medical care services. Similarly private schools because of their charging exorbitant tuition fee are not within the reach of low and lower middle income families.
The magnitude of the need for infrastructure for all sectors of the economy as well as social sector justifies the increasing intervention of public sector even at the cost of enhanced dependency on external borrowings provided public investment will be productive and yield significant dividend for the budget or in other words public investments have a high yield than private investment. Public investment, apart from efficient utilisation of funds needs to be accompanied by a good quality current spending and sizable cut in distortional taxes so as to lessen the intensity of economic and social disparities.
For all the IMF and Asian Development Bank’s supported programmes, Pakistan needs to ensure macroeconomic stability, debt sustainability and promoting and protecting public investments through fiscal adjustments. This can be achieved if government pays more attention towards mobilisation of revenue and reducing current expenditures rather than capital expenditures and most importantly maintain external debt-GDP-ratio at least bringing it down to the level of 50% of GDP through utilisation of borrowed funds only in highly productive and cost effective projects. For that it is essential that evaluation of all projects is done comprehensively and these are monitored vigorously at the implementation stage.
In view of non-developmental expenditures, particularly defence expenditures rising substantially in recent years and Tax – GDP ratio touching a low level of 9%, fiscal deficit is likely to increase further. Rising bill of imports now touching figure of $58.8 billion during the current fiscal year will further worsen current account position with no hope of any respite in rising trend of oil prices in future. Hence for mobilisation of funds for financing PSDP of Rs.800 billion major reliance will have to be on external borrowings/financial assistance. All borrowings for meeting short – falls of PSDP budget need to be arranged cost free with a grace period not less than 10 years relating to repayment schedule.
To make all public sector investments cost effective, it is to be ensured that all projects to be undertaken start in time and all norms of good governance are met at all levels, which entails strict monitoring to ensure creation of required number of job opportunities from each project and completion of projects within the estimated budget and meeting all social development targets particularly relating to education and health care.
Major share of current year’s Public sector investment has gone into development of physical infrastructure water and energy producing projects and particularly social sector that is education and health care remains at stagnated level of 1.7% to 2% of GDP respectively. Major healthcare budget was utilised for combating Covid-19 by successfully vaccinating almost 50% of country’s population by now and providing special health units in all public sector hospital to treat Covid patients. However, government’s claim achieving fiscal stability without compromising spending on social sector cannot be given a weightage as stagnant status of education and health sectors gives little hope of achieving sustained growth according to set targets by period ending December 2030.
However, PSDP budget of Rs 800 billion for next fiscal year brings hope for removing economic and social imbalances. Allocation for development of physical infrastructure would create tremendous employment opportunities through mega projects like construction of planned big dams, energy projects, motorways and railways etc, culminating into improving quality of life for people. This will be in addition to projects going on under CPEC programme.
Introduction of Ehsaas programme with its components of cash transfers (under Kafalat programme) and loan schemes for youth and women for their economic empowerment scheme through allocation of Rs 206.20 billion from the development budget would provide self-employment opportunities to unemployed youth of the country. These young men and women going into business with startups in areas of mobile utility stores and transport would ease up the life not only for themselves but also for people in far flung areas where these facilities are not available. To address the grievances of low income class after abrupt rise in oil prices. Provision has been made in recent budget for payment of Rs 2000/- to each family earning up to Rs 40000/- per month.
For a long time to come public sector intervention would be needed to bring visible change in all sectors of economy and also social wellbeing of the masses and above all achieving the all seventeen areas goals identified under Sustained Development Goals (SDGs) by 2030.