ARTICLE: The Budget proposals for the next fiscal year read like a statement of hope written with fingers crossed. And these fingers are likely to remain crossed over the next 12 months as the country, for lack of a sensible economic strategy and no clear idea about estimated income and expenditure for the year, would most probably continue to hurtle along on a journey into the unknown.
But it need not have been so. The opportunity instead could have been used to present proposals to change the economic model from centrist in character to one based on the principles of unadulterated federalism.
Pakistan is a federation because its founding fathers had wanted it be so. And it is highly likely that without the pledge of autonomous and sovereign status to the constituent units the Lahore Resolution of 1940 could not have been adopted. The federating units, therefore, cannot to be treated as subordinate to the federal government because it were the provincial assemblies that had, in the first place, created the federation; they are not the creatures of the federation.
The principles of federalism allow the federal part of the government to function within its constitutionally fixed fiscal and monetary limits while carrying out its responsibilities restricted to subjects voluntarily conceded to it by the federating units while retaining their respective responsibilities listed in the 18th amendment.
The major crux of the 18th amendment with regard to political autonomy was the devolution of 17 ministries, including those of education, food, agriculture and health, from the centre to the provinces, allowing the provinces to formulate policies and projects in these spheres in their domain. The Council of Common Interests (CII) was also formed to allow provinces to coordinate in matters like public health and education.
Roughly speaking, if the 18th amendment is implemented in its true letter and in spirit, the federal government would have no more than four portfolios to look after - finance, foreign affairs, defence and communication.
The provinces, on the other hand, would need to take care of development, law and order, agriculture, commerce and industry. And the local governments would be left with the task of taking care of education, health and drinking water, etc.
Paradoxically, however, since the seventh NFC Award, finalized in 2009, the federal government, which continues to remain as elaborate as it was before the 18thamendment, has been trying but failing badly to make the two ends meet with the meagre residual resources available to it from the divisible pool.
From the core ministries, an estimated 40,000 people are to be transferred to the provinces and if the staff from related bodies is also included, the number is estimated to run into millions. The federal government has already announced that none of the employees not wanting to move to the provinces from these ministries will be sacked or put in the central pool.
A firm decision in this regard could have been taken through the budgetary proposals for the incoming fiscal year and minimized the federal government's fiscal burdens made even heavier by the subsidies from the national exchequer to PEPCO, the Railways, the Pakistan Steel Mills, PIA, etc.
If this untenable arrangement continues unchecked, the provinces would continue to draw ever larger share of resources without the pro forma increase in their responsibilities in accordance with the 18th amendment. On the other hand, the federal government would continue to draw an ever smaller share from the divisible pool with its responsibilities remaining the same as before the passage of 18th Amendment, with the added burden of debt servicing and subsidies along with the responsibility of providing hard cash for the ongoing war against terrorism and for defending the country's borders.
The opportunity offered by the 2020-21 budget event was perhaps also the most appropriate occasion to put a final stop to the economically farcical practice of allocating twice for the same task - once at the level of federal government and the other at the provincial level. This we have been doing since the announcement of 2010-11 budget despite suffering from a chronic shortage of resources while our tax-to-GDP ratio continues to remain stuck in the absurdly low range of 8-9 percent.
We could have also used the opportunity to recommend along with the budgetary proposals for 2020-2021 a socio-economic framework on which to subsequently build a truly social-welfare state by expanding the public sector to cover health, education, transport and housing catering exclusively to the most vulnerable part of the population which is estimated to be around 30% of the total.
Since the income from all the known sources continue to be too insufficient to fund even the normal budgetary obligations like the current expenditure, the development outlays and the defence and debt commitments, we need to come up with some out of the box ideas for mobilizing additional unencumbered resources to finance the huge outlays required for taking up in the public sector the proposed responsibilities for providing affordable health cover, affordable educational facilities, affordable transport and affordable housing to the most vulnerable among us.
Plus, an adequate amount of cash should also be made available to those living below the poverty line. Called the Universal Basic Income (UBI), such payments cover the basic cost of living and provide financial security to the poorest of our poor. This can be done by further expanding the Ehsaas programme.
Adair Turner, an academic, policymaker, and member of the House of Lords, in his new book, "Between Debt and the Devil: Money, Credit, and Fixing Global Finance" (Princeton), argues that countries facing the predicament of onerous debts and slow growth should consider a radical but alluringly simple option: create more money. It's a deadly serious proposal, actually. It has indeed almost the status of a mortal sin, though. But it's also a proposal that serious economists have broached before.
Turner insists that creating money may be the only way of generating a decent rate of economic growth and escaping the current recession. When there's more money in the economy, a single rupee becomes worthless. But experts argue there's precedent for it in a crisis, and that today, the possibility of direct central-bank loans - along with cash payments to the public - "should remain an option," though they'll require close coordination with responsible politicians and the strict maintenance of central-bank independence.
And in recent years, some including Adair Turner have argued the practice isn't so radical by forwarding the compelling argument that money supply and inflation have been decoupled in today's economy, and it may be better to stop dressing up monetary injections as bond purchases and just print the cash.
The option of printing money to fund programmes aimed at keeping poverty from getting out of control and swamping the entire populations has turned out to be the only alternative for countries like Pakistan in the face of shrinking economies the world over.
According to a recent World Bank newsletter (Per Capita Incomes to Shrink in All Regions), Emerging Markets and Developing Economies (EMDEs) are expected to shrink by 2.5% this year, their first contraction as a group in at least sixty years. Per capita incomes are expected to decline by 3.6%, which will tip millions of people into extreme poverty this year. A downside scenario could lead EMDEs contracting by almost 5% this year.
Economic activity in the South Asia region where Pakistan is located is projected to contract by 2.7% in 2020 as pandemic mitigation measures hinder consumption and services activity and as uncertainty about the course of the pandemic chills private investment.
And according to Daniel Gerszon Mahler, Christoph Lakner, R. Andres Castaneda Aguilar and Haoyu Wu (Updated estimates of the impact of COVID-19 on global poverty - June 8, 2020: WB newsletter) since April, the epicenter of the pandemic has shifted from Europe and North America to the global south.
Under the baseline scenario the authors estimate that COVID-19 will push 71 million into extreme poverty, measured at the international poverty line of $1.90 per day. With the downside scenario, this increases to 100 million. Of the 176 million people expected to be pushed into poverty at the $3.20 poverty line under the baseline scenario, two-thirds are in the region in which we live in.
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