Hopefully, the dust has settled by now; curses, disappointments and invocations subsided, with growing acceptance that the budget 2010-11 is a mixed bag of proposals - one which is a bit pro-poor and a bit pro-business at the same time.
The central theme, of course, is fiscal austerity - a tough but gettable target only if the government gets its own house in order, successfully rolls out reforms, and if expenses on the war on terror don get blown out of proportion.
At the risk of being tagged as a bad news messenger, this column would like to argue that the odds do not appear to be in favour of the government, at least not at the moment and not by looking at FY10s economic performance.
It is true that the governments current expenditure has been curtailed in the budget FY11, but whats to ensure that it will stay that way as the year progresses.
Budget documents reveal that expenses on General Public Service (GPS) shot up 23 percent over the budgeted amount in FY10, as executive & legislative organs, and their financial outlay ended 18 percent higher than what was earlier projected.
Along with GPS, defence expenditures may end up on the higher side too. Though, the government has allocated a sizable increase in defence expenses for FY11, don be too surprised if the actual amount exceeds projections, in case the scale of counter terrorism activities increase.
That might also require higher-than-budgeted expenses on public safety while the terrorists hit back. The war on terror has already cost the economy some $43 billion in the last few years, and any increase in untoward incidences can easily push up the number, especially if action is initiated in southern Punjab.
Though the general consensus is against that notion, certain quarters argue that action in southern Punjab is inevitable. If and when that happens, bombs could set off in the business hubs of the province, possibly triggering a wave of political infighting, given that Punjab is the centre of politics in the country.
A more dangerous bomb, however, is the debt bomb. Already at 56 percent, total debt as a percentage of GDP is a major constraint on Pakistans economic life - posing the all important question; how will it pay back the loans.
The ministry has been rational in not expecting privatisation proceeds in FY11, but somehow it still sees itself raising Rs43 billion through a Eurobond launch - a transaction that it failed to finalise in the outgoing year.
Again, the odds are against Euro bond sale; global economy isn out of the woods yet, with the Greece-led EU woes threatening to cause a double dip recession. Add to it, the risks of war on terror at home and the debt overload and it is easy to assume that selling EU bond will be a tough call.
The government talks of raising additional Rs117 billion in direct taxes, but its failure to meet its budgetary target in FY10 smacks this target. Despite all the aggression displayed by former finance minister Shaukat Tarin and FBR to widen the tax net and nab the evaders, the outcome fell short of what was desired.
VAT, therefore, remains the crucial factor in deciding the course of Pakistans economy. However, the so-called panacea of sorts has been delayed for the time being, until the government is able get it past the legislatures and finalise its modalities.
Though, uncertainty looms over the governments ability to implement VAT, rest assured it will be eventually rolled out, at least on paper, in order to meet IMFs conditions. And thats when the Pandoras Box will open, which like any reform will be painful and also leading to a potential loss of political and economic control.
As a consequence, government borrowing would likely increase, both from domestic and external sources.
In the case of former, inflationary pressures will increase while private sector will be further elbowed out of the credit market. In the case of latter, a recourse to the IMF would but be inevitable, a probability that finance minister Hafeez Shaikh simply failed to mention in his speech, just as he avoided using the dreaded word, VAT.
Replying to a question on VAT in his post budget press conference, the eloquent Dr. Shaikh could not explain in clear words the implications on IMFs remaining tranches and possible rolling over to next programme.
Unless, budget reforms are taken in letter and spirit, energy crises comes to a resolution and the war on terror subsides, a debt trap like that of the 90s is clearly in the offing.
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KEY BUDGETARY ELEMENTS
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Rs (bn) Budgeted Revised Budgeted
FY10 FY10 FY11
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Internal Resources 2298 2946 2597
Direct tax 565 540 657.7
Indirect Taxes 927 942 1121
Capital Receipts 190 260 325
Floating Debt 11 94.7 55
Permanent Debt 0.315 42.7 61.3
External Resources 510 577.9 386.6
Project loans 77 90 64.7
EURO Bonds 41 0 43.2
Other Aid 41 121 43.2
Tokyo Pledges 145 66 55.2
External grants 65.4 127.7 99.6
Current Exp. 1699 2017 1997
GSP 1189 1471 1387
Defence 342 378 442
PSDP 646 510 663
Privatization Proceeds 19.3 0 0
Bank Borrowing 144 89 166.5
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