A Sweet and Sour Budget
Federal Council Seminar
by Ms Benazir Bhutto
June 20, 1997

Ladies and Gentlemen:

1997-98 Budget is a sweet and sour Budget. Sweet from the perspective of business and industry. Spectators and carpet beggars.

Sour from peoples perspective: there is no quid progeno for the massive mandate the rulers claim the poor people gave them.

It is business friendly because tax rates have been reduced. Whatever fragile instruments and  were available for catching tax - evaders. Black marketers and carpet beggars have been destroyed. Revenue collection has been left to the mercy of hardened tax evaders.

It is unfriendly to people because further holes have been created in the revenue system through new exemptions.

It is unfriendly because peoples right of spending out of growing nominal GNP on their welfare, their social development and their poverty alleviation has been curtailed.

It is not Qarz Utaro Mulk Bachao Budget because the overall deficit will be Rs. 144 billion. Adding the repayment of foreign debt of Rs. 62 billion which is netted out for working our overall deficit, the gross borrowings will amount to Rs. 206 billion. That would add up at least Rs. 30 to 40 billion in interest costs to the Budget of the following year. This is just the beginning. This is based on very optimistic estimates of revenue collection. The total borrowing for the budget in 1997-98 may exceed Rs. 230 billion.

We have seen Sartaj promising overall fiscal deficit of 5 per cent of SDP thrice, in 1990-91, 1991-92, 1992-93, every time ending up with 8 to 9 percent.

It is a "Qarz Brhao Mulk Bigaro Budget.

Sartaj Budgets have always increased national debt.

We can put the economy and macro stability above self and above our popularity.

It has been alleged that four years ago WAPDA, PIA, OGDC, Gas companies were viable institutions and now they are crisis ridden. Who is responsible for this? These organisations development spendings used to be subject to scrutiny of the Ministry of Finance. The Nawaz 1st regime excluded WAPDA, OGDC, PTC and NHA from the Budget. They dismantled all disciplines and allowed a free hand in financial commitments. By 1993, these corporations were in such severe cash flow crisis, that when we took over, WAPDA found it impossible to renew its bonds even at 22% interest rate.

They have boasted of raising the Foreign Exchange Reserves by $500 million to $1 billion. They have not told the Nation that this is through additional short term liability of $1.5 billion. Where has the remaining $ 1 billion gone?

Sartaj Aziz has said that the growth in 1996-97 was 3.1%, lowest ever in eighties and nineties. Let us remind them that in 1992-93 they had the distinction of a GDP growth of 2.3%. The growth rate of 1996-97 for which our government is not "responsible"; has been deliberately depressed to show an improvement in 1997-98. How can these De 9% growth in manufactured exports in dollar terms with a decline of 1.4% in large scale manufacturers when the bulk of our exports are textile goods.

Even this exaggerated growth of 6% in 1997-98 does not promise the supply side miracle dreamt by Nawaz Sharif regime.
5% growth in agriculture would only mean that there will be no damage through floods and drought and the targets of 1996-97 will be achieved in 1997-98.

Much of the promised growth of 7% in the manufacturing section will be correction of under estimation of growth in 1996-97.

The budget speech concedes our success in energy generation. But for our bold initiative, our industrial sector would have continued to suffocate under the dark shadows of chronic power shortage. WAPDA was unable to mobilise resources even for its on-going projects.

This tax-free, effort free-Budget has throttled the development process. The total PSDP of Rs. 90 billion which Rs. 80 billion in terms of 1996-97 value is far below the Rs. 106 billion announced by in for 1996-97.

This Budget is unable to achieve any one of the many sweet dream of the dreamer, the proponents of the supply side miracles and author of Voodoo economics. It will halt the pace of progress in social sectors and agriculture infrastructures, the two areas thoroughly neglected during 1977-88. The largest irrigation system boasted by Sartaj Aziz is in shambles. Forty percent of irrigation water is wasted  and 35% of arable land has lost its fertility.

The Peoples government had raised the allocation for water - sector from Rs. 8 billion to Rs. 13 billion realising that water is a lifeline of our country. The water development and water management is key to the prosperity of the rural poor and for that matter Pakistan.

The Budget for 1997-98 provide a mere Rs. 10 billion if we met out the short fall which is an euphemism for reduced releases.

When the peoples government was formed in November 1993, the Federal Development Budget for Education was only 0.4 billion. In three years we raised the allocation to Rs. 1.6 billion in 1996-97. The Caretakers and Nawaz Sharif Government drastically curtailed the development Budget for Education to half of the budgeted amount.

We had doubled the spending on Social Action Programme in two years from Rs. 26 billion in 1992-93 to Rs. 54 billion in 1995-96.

This budget allocates only Rs 0.0 billion for Education and Training in the PSDP compared to Rs 1.6 billion allocated in 1997-98 Budget.  It is less than half in real terms.  It is because of our commitment to Education that 35,000 new primary schools were built in three years and the adult literacy moved up from 35% in 1992-93 to 40% in 1996-97.  With this lukewarm attitude towards Education Nawaz Sharif  Government cannot achieve any of its lofty targets.

We raised the expenditure on Education from 2.15% of GDP to 2.52 % of GDP.  It is because of drastic cuts made by our successors that the spending has come down to 2.40% of GDP in 1996-97.

It would have been much better if Nawaz Sharif has mustered some courage, and used its mandate to enhance Development spending.  Reduction of PSDP to about 3 %  of GDP and within that higher attractions to Motorway and highways would accentuate the acute deficiency in infrastructure which has held down the growth rate.  The World Bank estimates an investment requirement of $ 100 billion in physical infrastructure to support a growth of 6%  in GDP in the next 5 - 7 years.

How we can achieve any of laudable objectives stated in the Budget speech with a deceleration in budgeted development spending.

This tax-free Budget will retard the process of socio-economic development of the People of Pakistan.

Even the paltry resource mobilisation of Rs 10 billion is based on airy fairy assumptions.  Sartaj should have used the peoples mandate to enforce documentation in the economy and extend GST to retail in one go.  We did away with all exemptions at manufacturing and import stage in our very first budget.  This budget has made fiscal viability vague and distant.  This Budget has shorn the government of its ability to collect adequate resources from the rich and spend on the poor. The Budget has further enmeshed the debt trap.

This  Budget has made Atta, Vegetable Ghee and Sugar more expensive but on the other hand it has mobile phone cheaper, it has made Pepsi, Coca Cola, all beverages and concentrates cheaper.  This Budget enhances the profitability of owners of beverage industry (PML statements).  This Budget gives a gift of 7.5% of ex-factory price to cement producers who had acquired the cement plants at throw away prices and made huge escalation in prices within six months (Mansha).  Now that they have a business friendly Government they must have their pound of flesh.

Can we afford to give more tax holidays.  Direct taxes are payable only if there are net profits.

Can we afford to encourage consumption of beverages based on imported concentrates when we can encourage domestic juices and drinks industry.  Should Government borrow more on short term to boost beverage industry.

Should Government loosen its grip on tax-evaders.

Should  it whiten the ill-gotten wealth for a paltry contribution.

Should it decelerate the public spending on projects in Social and Agriculture infrastructure sectors.

Should the massive mandate not be used for the service of the people.

Should the government must courage to tax the rich for the benefit of the poor.

I leave these questions to the people for their answer.

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