My gut reactions to the budget!

The budget speech, the second for Dr Hafeez Sheikh in his lifetime, was marred by loud protests by the PML (N) drowning out his words and the hurling of bangles as well as pages torn from the budget documents towards Finance Minister as well as the Prime Minister.
The raison d'etre of the protest could not unfortunately be the budget itself (as copies had been distributed scant minutes before the speech); the protest was against the government's failure to adhere to the implementation process of the resolution passed by the joint-sitting of parliament in the aftermath of the Osama bin Laden killing. The President and the Prime Minister consulted and decided on a list of five names for the inquiry commission, at least three out of which would have been acceptable to the PML (N), however no effort was made to follow process that required a phone call to the selectees to assess their availability and, in cases of the non-retirees, ascertaining the availability from their supervisor/boss. There was thus no mala fide intent on the part of the government, merely lack of knowledge about the process. Be that as it may the PML (N) stance during the budget has dispelled the impression of an opposition party suspected of complicity with the government by opting to walk out as a form of protest that allows the government to carry on business as usual without any interruptions. An example epitomising this complicity is the PML (N) decision to stage a walkout during the President's joint address to parliament that allowed the President to deliver his speech to a docile parliament.
However ill-timed or indeed raucous the PML (N) protest was one fact needs to be acknowledged: it is the right of the Opposition to protest in or outside parliament. The PPP MNAs including the Prime Minister and other members of his cabinet's response to the noise was to place ear muffs/headphones to filter out the protest noise. This was ill-advised as it my have fuelled a perception of a government that would deliberately not heed dissent. That the voices of dissension against the government's economic policies transcend those of the PML (N), PPP's political opponents, and are growing louder by the minute as the struggle to meet daily expenses rises should not be in doubt. There is a general consensus that the budget presented by Dr Sheikh would further erode the value of each rupee earned, though the PPP once again decided to insulate the bureaucracy (civilian and military) against the 15.5 percent revised inflation for 2010-11 by raising salaries by 15 percent. This, in the aftermath of the 50 percent pay rise last year, is very generous and appears to be rooted in politics rather than on sound economics.
Why do I think the budget will make the poor poorer? The budget deficit of 4 percent of GDP is an understatement on four accounts. First, the ambitious revenue target of 2463 billion rupees must be seen in the context of the Federal Board of Revenue's ability to meet budgetary targets - an ability that has not been in evidence during the last decade at least. This year alone the FBR revised its target downward three times. Second, external resources from the IMF as well as from other bilateral and multilateral donors are an overestimation as the likelihood of the International Monetary Fund reactivating the stalled Stand-By Arrangement (SBA) is small with most of its critical conditions unmet in the budget. This, in turn, will dash Dr Sheikh's hopes of getting a Letter of Comfort that donors (bilateral as well as multilateral) would require prior to releasing their pledges for budgetary support. Third, in 2010-11 total expenditure did not decrease in spite of a massive slash in development expenditure. Thus even while development expenditure was cut by a whopping 94 billion rupees (a factor responsible for low investment rates which consequently impacted on the growth rate) current expenditure rose from the budgeted estimate of 1998 billion rupees to 2296 billion rupees - an addition of 298 billion rupees. The reason for this rise is attributed to the dramatic rise in interest payments on domestic debt (estimated at 30 billion rupees), transfer payments (subsidies that were not budgeted) rose by 73 billion rupees, and the non-defined others rose by 254 billion rupees compared to what was budgeted. And, finally, the revenue targets are based on GDP growth of 4.2 percent next year as indicated in the medium-term budgetary statement. This growth would necessitate a set of policy actions that would focus on productivity. There appears to be little in the way of targeted pro-productivity measures in the budget. The focus remains on revenue generating measures.
Much is being said about the decision to reduce subsidies, a standard normal condition of multilaterals who urge full cost recovery instead of subsidies that breed inefficiencies, as an anti-poor measure. In this context, it is relevant to note that the budget seeks to reduce subsidies to 166 billion rupees (much of it attributed to a decline in subsidy to Wapda through reducing the inter-disco tariff differential) compared with the 395 billion rupees in the revised estimates of 2010-11; however the budgeted total for this year was 127 billion rupees. This as a reflection of a mindset would imply that the government would capitulate and raise subsidies if its coalition partners insist on tariffs as well as oil prices that are affordable. However subsidies are not inflationary like the fiscal deficit even though it indicates inefficiencies and mismanagement which need to be controlled.
What about the social protection programme of the government? Would not that ensure targeted insulation, targeted to the poor, against inflationary pressures? The 2010-11 budget for social protection was 1.5 billion rupees revised to 2.9 billion rupees. The budget for 2011-12 envisages 1.1 billion rupees - lower than what was budgeted last year. Benazir Income Support Programme would receive 50 billion rupees (it must be borne in mind that the allocation of 50 billion rupees in the budget for 2010-11 was slashed by 15 billion rupees by the end of the year) and Baitul Mal will receive 2 billion. The amounts are nominal.
The Finance Minister continued to be much enamoured of those who gave him the job: the President (he again mentioned the voluntary giving up of his powers as the outcome of the eighteenth amendment) and the Prime Minister (as the longest running Prime Minister after Z A Bhutto and Liaquat Ali Khan) and for good measure he added the name of the Leader of the Opposition.
However, for me his final words, delivered at the beginning of his budget speech, were "whenever we have come together we have surprised the world with our achievements." I will list only four achievements - two economic and two political/security related: (i) halving of the 2010-11 growth target of 4.5 percent to 2.4 percent, (ii) a target inflation of 9.5 percent was understated and actual achieved was 15.5 percent according to the revised estimates; (iii) the independent inquiry into the security failings associated with the killing of Osama bin Laden a month ago remains pending, and (iv) foot dragging in court ordered investigation into massive financial scams.