Budget - Not all is doom and gloom.

Byline: Sayem Z. Ali

Prime Minister Imran Khan's PTI led government has announced a tough budget to arrest the alarming build up in public debt over the last decade. Dr Hafiz Shaikh in his press conference at the launch of the Economic Survey FY19 lamented that the size of the public debt has reached unsustainable levels. Public debt increased from Rs 7.7 trillion in FY2009 to over Rs 28.6 trillion in FY2019, meaning that debt has nearly quadrupled in a decade.

In the upcoming year FY2020, just the size of interest payments on the debt accumulated over the last 10 years will reach Rs 2.9 trillion, which is a whopping 83% of the total budgeted federal revenue collection targeted in FY2020 Budget (net of provincial transfers and inclusive of all tax and non-tax revenue). This leaves hardly any resources for the federal government to run the civil and military administration, fund the growing pensions bill, and make critical investments in public infrastructure.

Faced with this alarming situation, the only option on the table for any government would be to take sharp austerity measures, including reducing spending and raising government revenues. These are deeply unpopular moves for any government. Opposition parties are protesting against the measures and citizens are bracing themselves for a tsunami of inflation on essential good and services. Media analysts are kicking up a storm on the impending doom and gloom of the economy.

All governments in the last decade have gone down the same route. Every election cycle has been followed by a balance of payments crisis whether it be 2008, 2013 or 2018. Each time we have had to reach out for a bailout from the lender of the last resort, the IMF. The prescriptions are always the same: more taxes, higher interest rates, depreciation of the rupee and reduction in subsidies. Inevitably all these corrective measures lead to lower growth and higher inflation. The bigger the crisis, the bigger the adjustment needed to stabilize the economy, and hence, the bigger the impact on growth and inflation.

Given the size of the crisis the economy is facing today, the FY2020 Budget was expected to unveil significantly tougher measures such as increase in GST on goods and services (from 17% to 18%), increase in corporate tax and super tax, roll back of subsidies, and a significant reduction in the size of the Public Sector Development Program (PSDP). However, quite surprisingly and to the relief of many, none of...