The budget this year has come at a moment when Pakistan’s economy is in the grip of a severe and protracted combination of stagnation and inflation. At the same time the government is caught in an acute fiscal constraint which restricts its ability to address the crisis of recession, rising poverty and unemployment and the attendant stresses on a society in which the majority are in the less than 25 year age group. Yet the government’s Finance and Planning Commission’s team has risen to the occasion and responded with rare clarity and vision to address the economic crisis. A critical evaluation is in order.

Finance Minister Hafeez Sheikh’s speech is unique in Pakistan’s history in that it has located the budget in the context of a long term growth framework and clearly identified the conceptual basis of setting development priorities and controlling the budget deficit. A new perspective has been provided in terms of an emphasis on generating growth through increased productivity, performance based professional management of service delivery, unleashing the productivity potential of the youth and institutional changes in the regulation of both markets and cities. This is fine as far as it goes. However, the essential weakness in this vision is that for productivity to fuel growth and for the potential of the youth to become the agents of this growth process a profound change in the institutional framework and the underlying power structure is required. The fundamental factor in Pakistan’s failure to achieve sustained high growth is that the institutional structure systematically excludes the majority of the population from participating in the process of growth through either productive investment or high wage employment. It is precisely on the basis of this exclusion that rents are generated for the elite, which enjoys preferential access over both the investment process and markets. With such a narrow base, growth can neither be sustainable nor can productivity be its catalyst. It is only when access over productive investment, high quality education, and health care is available to all of the citizens rather than a few, will a broad base be established for competition, efficiency, innovation and productivity growth to place Pakistan on the path of sustained growth. There was no word of this in the budget speech.

How can the productivity potential of the less than 20 year age group be unleashed, (which as the Finance Minister points out constitutes 50 percent of the population) when most of them fester in the darkness of closed minds and rote learning that is trotted out as education by badly equipped and poorly staffed schools, colleges and universities? How can they contribute to productivity increase, if such a large proportion of them suffer from diseases due to the fact that they do not have access over safe drinking water? There is no provision for this in the budget either in terms of resources or institutional mechanisms for translating resources into measurable outcomes.

The objective articulated in the budget speech, of power sector reforms and restructuring and privatizing loss making public sector enterprises to plug the hemorrhaging of the exchequer is laudable. However what was required was to specify time bound management initiatives that the government intends to take towards the achievement of this objective. An equally important requirement to control the deficit from the expenditure side is to drastically reduce the government’s unproductive expenditure on the plethora of redundant and in some cases overlapping ministries and government departments. An amount of Rs. 91.5 billion can be saved through such an effort

The approach towards a more rational allocation of development funds to ongoing infrastructure projects is finely tuned and conceptually elegant. However the question that needs to be addressed is what organizational and institutional changes can be undertaken for a more efficient use of resources in new development projects. This issue is closely related with the large gap that has historically existed between allocations and disbursements of the Public Sector Development Programme.

The elegant conceptual framework notwithstanding, this is a fire fighting budget in that its focus is on stabilization rather than growth.