Budget 2013 Analysis:Ishaq Dar kick-starts a ‘bubble economy’

Budget Analysis:Dar kick-starts a ‘bubble economy’ 

Saeed Minhas

Newly elected government of Pakistan Muslim League (Nawaz) has finally presented a budget to lure businessmen, army and investors by raising their hopes of getting the real kick out of the cash starved economy.

The same man who had orchestrated a US $ 7.6 billion loan from IMF at the start of Peoples Party government in 2008 was seen ensuring nothing but covering all the vulnerable bases for his own party’s government. Their core vote bank of business tycoons and an institution which has lately become nothing less than an Achilles Heel of Nawaz League (or for that matter for all elected governments) have all been extended a hand which remained elusive for them during Zardari led government of the past.  

Army has been offered a 10 per cent (15 % if we add PSDP dole outs) hike whereas investors and businessmen have got what they have been looking for in the past five years; a further decrease in interest rates to help them stave off their burden of heavy bank loans. By resorting to the old paradigm of ‘you scratch my back and I yours’ federal finance minister Ishaq Dar was magnanimous to indirectly praise the previous government of PPP by highlighting the fact that the inflation has scaled down from double digits to just 8 per cent.

What does that mean for an ordinary person? Nothing but despair, reveals many economists when asked about the reality of ever climbing inflation. According to IMF and CIA fact books it still stand around 11.9 per cent in Pakistan. However, figures from State Bank of Pakistan differ dramatically because according to their latest revelations inflation has further gone down in May this year from 6 to 5.7 per cent. Interestingly, the CPI reveals these startling figures because SBP does not include food and energy sector hikes while calculating these figures. With three hikes in electricity and an added fuel surcharge during the caretakers, people are already reaping the fruits by paying not only these hiked rates of absent electricity but almost double the prices for all edibles and basic necessities. Real fruits of nature seem to have become a dream for majority of the population even in urban centres. Yet if the newly elected government, which few weeks earlier was crying hoarse that massively corrupt regime of PPP has made life miserable for common citizens, feels that a magic wand has turned things around, then we should all head for jungles to join the massive roars of the new Lion. But remember this too that gone are the verbosity-filled electioneering as reality has already sunk in and is biting not only Nawaz League but more so to the common man on street.

Minimum wage was supposed to see at least 50 per cent if not 150 per cent increase as per the election manifesto of Nawaz League in May 2013. But that too did not materialize. You know why because of the emphasis of the federal finance minister that inflation has actually come down. Therefore, it gives the justification to the federal government to leave the federal employees and pensioners without any need for increase in their purchasing power. However, because the inflation has remained low, therefore, it will be the same common man who will have to pay an extra one per cent in sales tax (another IMF promise fulfilled).

All of a sudden it seems that federal government within a span of couple of weeks of taking over the federal government has started seeing the people living in green pastures without any complaint or shortcomings. Isn’t it amazing?  Of course it is.

Ishaq Dar has already made his intentions clear that no matter how much his party leader wants to break theKashkool (begging bowl), he sees no other way to pay off the spiraling burden of internal and external debts but to resort to new loans. Many economist believe that the new government is interested in creating a ‘bubble economy’ by resorting to the same old tactics they knew the best; low mark-up loans for 50,000 youth, duty free import of hybrid cars and lowering of interest rates. Does it have any resemblance with yellow cab schemes, youth investment scheme and duty free import of Mercedes Benz by the same party during 1990s? Certainly a lot. So let’s welcome the first budget of a party, which seems to have transformed a lot, or at least that’s what we have been hearing in the lead up to their oath taking.

With mini budgets likely to be pouring on all of us like an unending monsoon, we should be ready for another bank driven bumpy ride for at least next five foreseeable years. Federal minister Ishaq Dar has kick-started the same bandwagon which Silk Tareen tried to decorate with his banking connections, Hafeez Sheikh with his hedge-fund investors and then caretakers with the dictates from the Khakis.