Saadia Gardezi talks to Dr Nadeemul Haque, deputy chief of Pakistan Planning Commission and chancellor of Pakistan Institute of Development Economics, about the new budget and the new growth strategy- The Friday Times, 11th June, 2011
TFT: To what extent do you think the Ministry of Finance has been successful in making a budget that can draw Pakistan out of its current downslide? Economists like Shahid Javed Burki have said it is a disappointing budget. Are these concerns well founded?
Dr Nadeemul Haque: I think the ministry did as well as they could with the situation they have. We tend to think that the budget solves all problems of the economy. It cannot and it does not. That’s what the finance minister also said: the budget is just one part of government policy. The budget is just there to clarify expenditures and revenues. In Pakistan, we expect too much of the budget and seldom focus on the policy.
TFT: Do you think the current budget removes barriers to private investment mobilisation?
NH: I don’t know if it is the responsibility of the budget to do this. The budget is about what is and what is expected to come. For the impediments in the private sector you need a good growth strategy. And nobody reads the growth strategy.
TFT: One proposal of the budget is slashing subsidies, including those to the power sector, from Rs395 billion in 2010-11 to Rs166 billion. In the current fiscal, power sector subsidies alone remain more than Rs200 billion. What problems do you foresee with regards to cutting subsides?
NH: If the cutting of the subsidies means creating efficiency, it’s not going to cause problems. With subsidies to the power sector there’s a lot of wastage and theft. Line losses have to be decreased. On the other hand, subsides to the agriculture sector have not been touched.
The creation of efficiency and the movement away from protecting and subsidising is an important part of a reform we are trying to push for. Yes there will be opposition and some short term problems with cutting useless expenditures but hopefully we will grow.
TFT: The budget speech also promises to reduce inflation by half, to 9% in 2011-12. Do you think this is possible or is the government being too optimistic?
NH: Yes it can, I don’t think there is anything to stop us from moving in the right direction. If we control money supply, stop printing more money and keep the deficit small, inflation can come down. This requires strict fiscal discipline, but why not? Just because you get into trouble doesn’t mean you can’t grow up.
TFT: There has been a lot of discussion in the media that this is not a pro-poor budget. What is a pro-poor budget and is this budget pro-poor?
NH: I don’t think the budget allocations can be thought in terms of being less or more pro-poor. There a set amount that has to be given out. Now there is a huge allocation made for the Federal Public Sector Development Programme (PSDP), and I suppose you could call that pro-poor. The budget makes allocations for these sorts of development expenditures. It doesn’t make policies to tackle poverty, unemployment or underdevelopment.
For policy you have something like the growth strategy. A policy strategy that can guide the government towards better growth and expansion. With growth, employment will be created so that people can benefit. Making a concerted effort to reform the economy to encourage investment, entrepreneurship and growth to create new jobs is what is pro-poor. Handouts given in the budget are not pro-poor, creation of new jobs is. It doesn’t make sense to rely on budgetary handouts for poverty alleviation.
TFT: In the Planning Commission’s new growth strategy, the private sector is the growth-driver in an open market environment. Do you think the budget is structured according to this growth strategy?
NH: Yes it is. The budget simplifies the tax structure and the tariff structure and so encourages the private sector. This fits very well with the strategy to build an open economy. We have an economy that is often closed down for the sake of a few and we protect sections without viable economic reasons to do so. If we can stop doing that, stop regulating the economy for the sake of a few people, then we can create more space and create competitive markets. The budget is complementary to the growth strategy.
TFT: Are the provinces on board with the growth strategy?
NH: The growth strategy does not operate in a command economy, where we tell people what to do. It is a vision and a way forward. It talks of creating space for knowledge, for entrepreneurship, technology and capital formation. With the strategy we talked to the government and various ministries and everyone seem to largely support it and appreciate it.
TFT: Previous governments have also focused on growth led by the private sector. What is different about this growth strategy?
NH: Simply advocating private sector growth does not mean much. We have been talking about private sector-led growth for a long time. We are talking about entrepreneurship in this report. Encouraging entrepreneurship is going to create much more innovative competition.
TFT: How long are the reforms outlined in the growth strategy going to take?
NH: A time frame has not been specified in the strategy. Reforms will take a long time, and at the end of the growth strategy we have defined the process. The government will need to stop competing with the private sector and provide public goods that have a higher social rate of return than the private rate of return, as well as transparent rules.
If the leadership takes an interest, then reforms can be implemented successfully. We have to create an open economy and society. The old 3-year and 5-year plans don’t work. They only worked in the Soviet Union. We are talking of gradual reform.
TFT: Can these reforms happen in the current political scenario? Will there be political opposition?
NH: Political opinion does not exist in isolation from public opinion. If the society wants change, then it cannot be stopped. I am looking towards ownership of these ideas in the society. If you accept these ideas, if universities buy into this type of a strategy, if people are wiling to talk about reform, then the political leadership will as well.
Pakistans Growth strategy can be downloaded as a pdf here