Op Ed on Pakistan's Budget 2010-2011

Guest Post by Dr. Ashfaque H. Khan, Dean of NUST Business School, Islamabad.

Abdul Hafeez Shaikh, the newly-appointed finance minister, presented his first and the government’s third federal budget in the National Assembly on June 5, 2010. Budget 2010-11 is the first budget under the new National Finance Commission Award and as such it posed difficulties far many analysts, experts, trade bodies and other segments of our society in understanding the budget.

The varieties of comments made in the print and the electronic media on the budget reflect such misunderstandings. One such misunderstanding deals with the size of the allocations made to the health and educational sectors.

Dr Shaikh’s budget speech was unconventional in several respects. Firstly, more than half of the speech was extempore, reflecting his confidence in the budget. No finance minister has ever moved an inch away from the written text of the budget speech. Secondly, Dr Shaikh gave an Economics 101 lecture to his fellow parliamentarians, particularly explaining inflation, the burden of public debt and the crowding out phenomenon.

Thirdly, he was upright in acknowledging the many failures of his government in the last two years and expressed his resolve to address the challenges. Fourthly, he was extremely critical about the performance of the Public Sector Enterprises (PSEs) and the damage they have caused to the economy. In so doing, he indirectly criticised his own government in treating these enterprises as sources of unproductive employment.

Fifthly, he bitterly criticized his predecessor for “indiscriminate borrowing” and doubling public debt in a short period of time. This requires courage to call spade a spade. I am glad that I was not the only person to have expressed concerns on such indiscriminate borrowings and the rising debt burden.

Budget 2010-11 has been presented with a view to setting new directions for a responsible economic and fiscal management. This budget is a major departure from the last two budgets as it aims to make concerted efforts to address the prevailing economic challenges.

Pakistan’s current economic challenges include: declining investments and slower economic growth; rising unemployment and poverty; persisting double-digit inflation; unsustaining debt burden; depreciating exchange rate; power mismanagement; and waning confidence of the private sector.

The first and foremost principle in addressing the challenges listed above is to stabilize the economy. Macroeconomic stability is the pre-condition to generate growth momentum. Stabilization is therefore the main objective of the Budget 2010-11. Through this budget, the government intends to reduce inflation which is the best relief that it can provide to the poor people of this country. Targeting budget deficit at 4.0 per cent of GDP represents the government’s resolve in reducing “twin” deficits (budget and current account) and bring debt situation under control.

Reduction in deficits and burden of debt would release pressure on interest rates which will allow the SBP to reduce the discount rate, generate growth momentum and create productive employment opportunities.

While stabilizing the economy through the budget the government has not forgotten the poor and the fixed income group. The allocation to the Benazir Income Support Program has been increased from Rs46 billion to Rs50 billion, hence benefiting four million families. This is a targeted cash transfer program for the poor alone to minimize their difficulties caused by higher inflation in general and food prices in particular.

The budget also talks about the exit strategy of the beneficiaries of the BISP in line with the international best practices. The salary of the government servants has been increased (50 per cent) beyond their expectations. The pensioner has also not been forgotten as he would see it rising by 15-20 per cent. These were the human face of the budget.

The budget also acknowledges the dominant role of the private sector in promoting growth and creating employment opportunities. The role of the government should only be restricted to creating conducive environment for the private sector through right policies and investment in physical and human infrastructure. Currently the government is actively involved in several public sector enterprises such as PEPCO, PIA, Railways, Pakistan Steel, PASSCO, TCP, NHA, Utility Stores etc.

These PSEs are inefficient and poorly managed and are a burden to the national exchequer. Can a poor country like Pakistan afford to pay Rs245 billion from the budget to keep them afloat? The answer is obviously no.

Dr Shaikh has committed himself to restructure these eight PSEs in 2010-11 and make them financially solvent as part of the reform agenda. History around the world has shown that such PSEs cannot be made financially solvent through restructuring.

The only solution is to bring them on privatization mode and sell them to the private sector even if we get a single rupee. At least it will save Rs245 billion of the national exchequer which can be diverted to the development program. It is sad that Dr Shaikh did not talk about privatization of these PSEs and did not put any amount under privatization proceeds in the budget. Do we sill need ministry of privatization?

Dr Shaikh and his team should be congratulated for presenting a sound budget in a most difficult and challenging time. This budget is fully consistent with my thoughts which have appeared in this column. This was the only way forward to address the current economic challenges. This budget is not a populist budget but a realistic one.

Budget 2010-11 can be termed as stabilization budget with human face and reform agenda. Mr Prime Minister! Your economic team has presented a sound budget. It would need your support in executing and achieving the revenue, expenditure and budget deficit targets. These targets, though ambitious, are yet achievable, provided the provincial governments and yourself keep supporting Dr Shaikh and his team.

Note By Riaz Haq: Here are some of the highlights of Pakistan Economic Survey 2009-2010 released by Ministry of Finance:

* Gross domestic product (GDP) was at 4.1 percent as compared with 1.1 percent of the previous fiscal year.
* Inflation is less severe as compared to last year’s 22 percent but is still in double digits at 11.5 percent.
* Current account deficit is expected to decline to below three per cent of Gross Domestic Product during the outgoing fiscal year.
* External current account deficit was contained to 5.6 % of GDP (US dollars 9.3 billion) in fiscal 2008-09, from a high of 8.3 % of GDP in 2007-08 (US dollars 13.9 billion)
* Economic growth in 2009-10 is provisionally estimated at 4.1 %, higher than the targeted growth of 3.3% percent.
* The fiscal deficit was slashed to 5.2 % of GDP in financial year 2008-09, from 7.6 % of GDP in 2007-08, a fiscal adjustment of 2.4 % of GDP.
* Foreign Exchange Reserves have been rebuilt to nearly dollars 16 billion, from their low of under dollar 6 billion in October 2008.
* International credit rating agencies upgraded Pakistan from CCC plus to B Minus by S&P, while Moody’s revised its outlook to Stable.
* Manufacturing Sector posted a positive growth of 5.2 % during the current fiscal year.
* 44 % of population has access to sanitation, while 65 % to clean water.
* Pakistan has become the largest user of Compressed Natural Gas (CNG) in the world, as per the statistics issued by International Association of National Gas Vehicles on CNG. Presently, 3105 CNG stations are operating in the country and 2.4 million vehicles are using CNG as fuel.
* Literacy Rate has improved from 56% to 57%. Literacy rate in Punjab is (59 %), Sindh, (59%), Khyber Pakhtunkhwa (50%) and Balochistan at (45%).
* Social protection measures were expanded from around Rs 8 billion two years ago to around Rs 80 billion this year.

Related Links:

Pakistan Budget 2010-2011 in Brief

Pakistan's Economic Performance 2008-2010

Incompetence Worse Than Corruption in Pakistan

Pakistan's Circular Debt and Load Shedding

US Fears Aid Will Feed Graft in Pakistan

Pakistan Swallows IMF's Bitter Medicine

Shaukat Aziz's Economic Legacy

Pakistan's Energy Crisis

Karachi Tops Mumbai in Stock Performance

India Pakistan Contrasted 2010

Pakistan's Foreign Visitors Pleasantly Surprised

After Partition: India, Pakistan and Bangladesh

The "Poor" Neighbor by William Dalrymple

Pakistan's Modern Infrastructure

Video: Who Says Pakistan Is a Failed State?

India Worse Than Pakistan, Bangladesh on Nutrition

UNDP Reports Pakistan Poverty Declined to 17 Percent

Pakistan's Choice: Talibanization or Globalization

Pakistan's Financial Services Sector

Pakistan's Decade 1999-2009

South Asia Slipping in Human Development

Asia Gains in Top Asian Universities

BSE-Key Statistics

Pakistan's Multi-Billion Dollar IT Industry

India-Pakistan Military Comparison

Food, Clothing and Shelter in India and Pakistan

Pakistan Energy Crisis

IMF-Pakistan Memorandum of Economic and Financial Policies


Riaz Haq said…
Benazir Income Support Programme (BISP) has developed 100 Days Action Plan (100 DAP) with over 70 actionable items with specific deadlines and responsibilities in order to meet the operational and service delivery related challenges."
Minister of State/ Chairperson BISP, MNA Marvi Memon disclosed this here on Wednesday while talking to the media during an interactive session at BISP Secretariat.
She said BISP is moving towards e-governance systems as all the action plans of 100 DAP will be tracked by the higher management of the organization and also by the Prime Minister and the Finance Minister through the dashboard mechanism.
The 100 DAP was developed through a brain storming workshop involving the Headquarter staff as well as the Field Officers to identify the major areas of concern and to find their probable solutions.
Moreover, feedback from the development partners of BISP as well as the Board members was also sought to make this action plan effective and practical.
Around 70 key areas have been identified for the action plan on which appropriate action would be taken on priority to increase the efficiency and productivity of the organization and to facilitate the marginalized segments of the society.
Sharing the salient points of the action plan, she said that the issues related to the disbursement of payment will be focused to enhance the efficiency of the payment process by tackling bank related issues including card activation and replacement process.
Compliance of the service agreement by the banks will be ensured and the new payment mechanisms like high-tech biometric cards will be piloted.
In order to help the uneducated and poor women for obtaining their cash transfer amounts smoothly, financial literacy project will also be started.
She said that the poverty survey was conducted almost five years back so it is under consideration that a fresh survey may be carried out keeping in view the present socio-economic conditions. The re-survey will also target those deserving families who were not included in the previous survey.
To facilitate more and more deserving people, BISP will make efforts for issuance of CNIC cards to the Non-CNIC pending beneficiaries. In this regard, social mobilization campaign through women committees will be launched.
According to the data available after Poverty Score Card survey 7.7 million families were identified as eligible beneficiaries of BISP, out of which 5.5 million are active beneficiaries while 2.2 million beneficiaries are still pending.
She further said that a sanity check of the database has been started and the payment to the beneficiaries has been initiated accordingly.
Moreover, anti-fraud public service campaign with the help of Telecom companies, FIA, PTA and media organizations has been started. In order to facilitate and empower the women through a complaint registering process, a hotline number 0800-26477 by the name of `FORI RABTA' has also been activated.
BISP is also launching a comprehensive communication strategy, SMS service for beneficiaries, e-newsletter, annual reports and a campaign against vulnerability through art, documentary films and documenting successful stories.
Regarding Waseela-e-Taleem initiative, she said, full extension would be done in 27 new districts with better attendance compliance and improved coordination with provinces.
A detailed Monitoring and Evaluation system would be devised for successful implementation of ongoing Spot Checks and ensuring timely launch of catch-up exercise for Unconditional Cash Transfer pending beneficiaries.
Marvi Memon said that the vision of the Prime Minister is to make BISP `pride of Pakistan' by improving its delivery services and products for the dignity of beneficiaries, their empowerment and for giving meaning to their lives.

Riaz Haq said…
Cash Transfers Help Pakistan’s Poorest by World Bank


Launched in 2008, Pakistan’s flagship national safety net program, the Benazir Income Support Program (BISP), is currently providing income support though predictable $15 monthly cash transfers to more than 5.2 million families of the country's nearly 20 million poorest people.

Over $3.5 billion has so far been disbursed to beneficiaries and the program aims to reach 5.3 million families by the end of the current financial year.

To further support these families and promote human capital development amongst the poorest, effective 2012, BISP has rolled out a top up Co-responsibility Cash Transfer (CCT) program, linked with primary school education of beneficiaries’ children.

Since BISP delivers transfers to female members of the families, this has significantly contributed to women empowerment and promoting financial inclusion. With a variety of innovations and building blocks of Social Protection systems, BISP is evolving as a national platform for provision of targeted services to the poor.

World Bank
" It is miraculous. Over time with the benefits that we have received, our children have rejoined school. Payment of children’s school fee and other expenditures is easy for us "
Khalida, BISP beneficiary from Faisalabad

According to a recent revision of poverty numbers, around 29% of Pakistanis live below the poverty line and many others are vulnerable to shocks likely to push them below the poverty line.

Before the launch of BISP, Pakistan’s main safety net programs had limited coverage and targeting efficiency: up to one third of the resources distributed were going to non-poor families and the delivery systems were inadequate.

Since 2009, the World Bank’s Social Safety Net Project has supported BISP to develop modern service delivery systems that enabled the institution to efficiently and transparently reach a large proportion of the poorest and provide them the benefit transfers. Besides various administrative improvements, the Project has also supported BISP to strengthen its partnership with provinces for joint implementation of CCTs.

" I was living my life in extreme poverty. BISP became my savior. My children are able to receive the formal education. "
BISP beneficiary


The establishment of a National Socio-Economic Registry through the use of an objective targeting system, hosting a database of more than 27 million households (approx. 167 million people) – the first in South Asia. More than 30 federal and provincial organizations are already using this registry to improve pro-poor targeting performance of respective social sector programs. BISP is about to launch the update of household welfare information in the Registry to be completed by December 2017.
By providing women access to national identification cards and making payments to female heads of beneficiary families, the program has significantly contributed to women empowerment. The enrolment of women for the NID card has almost doubled post the launching of BISP.
Transparency and efficiency have improved since more than 93% of the current 5.2 million beneficiaries receive payments electronically, and even the poorest women can access branchless banking accounts for the first time ever in their lives.
The Co-responsibility Cash Transfers (CCT) in 32 districts is linking cash transfers to primary school education. More than 1.3 million children have been enrolled in the program, of which nearly 50% are girls.
Partnerships with the provinces helped promote the National Enrolment Drive, raise awareness of the program amongst the poor and pave the way for the design and delivery of complementary services.
Riaz Haq said…
The (World Bank) report ( The State of Social Safety Nets 2015) – which identifies India as a “lower middle income group” country – finds that all other BRICS countries, except China, spend a higher proportion of funds on social safety net. Thus, Brazil spends 2.42 per cent, Russia 3.30 per cent, China 0.70 per cent, South Africa 3.51 per cent, and South Africa 3.51 per cent of GDP.
Interestingly, even the two of India’s neighbours – Pakistan and Bangladesh – spend a higher proportion on social safety net, 1.89 per cent and 1.09 per cent.
The report says, “Despite having fewer resources for social safety nets, some lower-income countries allocate considerably more funds than the 1.6 percent average for developing countries”.



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