Rationalizing priorities for federal and provincial budgets

Business Recorder

09-05-2025

For a country to be among the top ten countries in the world in terms of population, and with more than 60 percent of its population below 30 years of age, to have such a low GDP per capita, or average income per person, and where one-third of the country falls below the poverty line, along with weak economic institutional quality is a strong reason for concern. In addition, the country is also among the top ten climate challenged countries, not to mention the high association of climate change with the 'Pandemicene' phenomenon.
At the same time, the fast-unfolding climate change crisis has been producing strong negative consequences in the shape of heat waves, crop patterns and yields, and most importantly inducing poor air quality in terms of creating serious smog related issue all year long in many parts of the country, especially in winters, and where poor quality of petroleum, along with little forest cover being the main reasons for accentuating climate change in the first place.
Also, overboard application of austerity – both in terms of fiscal- and monetary austerity – policies has been employed to curtail aggregate demand excessively, rather than removing the supply-side bottlenecks to control inflation, and also increase domestic production, exports, and employment levels. Higher exports, and better import-side administrative controls, in turn, help keep current account sustainable.
Moreover, reined-in austerity policies enable better debt management, leave larger fiscal space mainly due to lower interest payments, which brings greater margin for government to introduce counter-cyclical policies. In an environment of low economic growth situation, which has been the case for Pakistan for some years now, means lowering taxes, and enhancing expenditures that overall help increase economic growth. Also, lower interest payment would also generate lesser need for downward revision of development expenditure in an overall effort to reach primary surplus, which being one of the conditionalities under the ongoing International Monetary Fund (IMF) programme.
At the same time, foreign portfolio investment (FPI) is not lured with keeping interest rates on the higher side, but rather better focus is placed for improving aggregate supply, along with introducing reforms to improve economic institutional quality all providing greater positive impetus to exports, and enhancing attractiveness for more reliable, and employment-enhancing foreign direct investment (FDI).
Hence, as a consequence of non-austerity and counter-cyclical policies on one hand, and greater administrative controls on imports, improved exports, and FDI levels on the other hand, produce strong positive impact on current account, enable bringing down tax burden and overall help reach higher, and more sustainable economic growth.
In addition, higher tariffs situation feeding into an already difficult world of polycrisis call for adoption of a well-focused policy for protectionism so that essential-natured domestic industrial base is established on a strong footing. This needs to be done to improve aggregate supply so as to safeguard against both the supply chain related disruptions, and the increase in imported inflation at the back of price gouging as was seen in the wake of Covid pandemic, where likelihood of more pandemics is significant due to strong influence of climate change in enhancing likelihood of zoonotic diseases and, in turn, pandemics in the future.
An August 15, 2024 Foreign Affairs article 'The World is not ready for the next pandemic' pointed out with regard to possible future pandemics as 'Less than five years after the outbreak of COVID-19, the world remains vulnerable to another pandemic. Over the past five months, a mutated strain of the H5N1 influenza virus detected in dairy cattle poses a potential risk for a pandemic-causing virus. Yet governments and international organizations have done far too little to prepare for such a scenario, despite the lessons they should have learned from the global battle with COVID-19.After the COVID-19 crisis revealed the shortcomings of the global public health response system, many assumed that governments and international organizations would strive to fix the most obvious problems. Given the catastrophic human and economic costs of the pandemic, countries had a strong incentive to start spending heavily on developing new generations of more protective influenza and coronavirus vaccines, as well as to greatly expand global manufacturing and distribution networks. But this has not happened. At current funding levels, it will likely take a decade or longer to develop more effective and longer-lasting vaccines.'
It is in this broader context that federal and provincial budgets are to be shaped. This whole budget context requires a consensus-based approach of both the levels of government, given many important subjects like health, education, environment, and agriculture stand transferred to the provinces under the 18th Constitutional amendment, along with meaningful enhancement of provincial share – which is close to 60 percent – in the divisible pool of resources going to provinces in the wake of the 7th National Finance Commission (NFC) award.
The federal and provincial budgets need better focus and alignment with regard to the three fundamental pillars – economy, environment, and epidemiology. Moreover, budgets need to internalize a connected role of all three pillars in an era of polycrisis, a situation that also demands creating domestic resilience in terms of developing local industry in an overall effort to create a green, and resilient economy.
Hence, for instance, smog is an important issue, and one of the main contributors to smog is consumption of low-grade petroleum products in the country. Hence, a budgeting needs to be made for replacing low-grade petroleum products with better grade oil. Moreover, changing the composition and orientation of public transport is important for the smog crisis, which means purchasing electronic buses, for instance, and improving the rail system.
Moreover, better rationalized priorities of budgets require bringing overall improvement in the rail system for instance – and not making disproportionately high budgetary allocations for limited-natured projects like establishing high-speed rail, and bullet trains as announced recently by government of Punjab – for greater route coverage, catering for much more population, and creating needed support for transporting goods is much more consequential in dealing with climate change crisis, and also for instance, providing much-needed support for farmers in terms of transportation from farm to market.
Similarly, budgets should be rationalized in catering to the financial needs of the organizational reform strategy of state-owned enterprises (SOEs) in an overall effort to improve upon the quality, and quantity of heavy industrial base, including the import substituting industry.
Moreover, budgets should be formulated in a mission-oriented way for improving the educational, and health sectors both in terms of improving the lagging performance with regard to Sustainable Development Goals (SDGs), and also for creating better preparedness, and resilience of these sectors in an overall environment of climate change crisis, and 'Pandemicene' phenomenon. For example, preparedness of schools in terms of remote learning, in case of lockdown if another pandemic comes, and enhancing capacity to produce vaccines domestically, and creating depth in production capacity to better tailor research for a specific disease on which the pandemic is based.
Another important focus of the budgets has to be on creating a basis for starting and sustaining a 'dual track' pricing framework, where just like China in the 1980s, and 1990s – when it was at a similar stage of economic development as Pakistan currently –prices of essential natured commodities of agriculture, and industrial intermediaries, for instance, and which are also in scarce supply, are kept at a level that allows better management of inflation, and also keeping exports competitive.
Hence, a significant amount of subsidy allocation needs to be made in federal, and provincial budgets to sustain this much-needed 'dual track' pricing framework, coupled with a well-focused reform strategy, with adequate level of governance, and incentive structures for increasing the productive efficiency of these sectors, so that over time less support is needed to be provided in subsidy at the back of greater efficiency gains and better price discovery of such commodities.
It also needs to be pointed out here that the current level of climate finance for instance is much lower than what is needed to dent the climate change crisis, especially much needed financial augmentation of budgets of developing countries, in particular of the highly climate change vulnerable countries like Pakistan.
Copyright Business Recorder, 2025