It comes as no surprise that the Budget 2011-12 reflects the straitened economic and financial circumstances of the country. That leaves little fiscal space for any relief for the beleaguered citizenry. The total proposed outlay is Rs 2,767 billion, up 14.2 percent on last year, but inflation means the increase may not turn out to be real. To meet this outlay, estimated gross revenue is Rs 2,463 billion (up 9 percent on last year’s budget estimates), leaving an apparent deficit of Rs 304 billion (up a whopping 82 percent on last year’s budget estimates and 33 percent less than the revised budget figure), to be met through bank borrowing. On closer examination, however, the gross revenue includes an amount of an expected provincial surplus of Rs 125 billion and external resources of Rs 414 billion. If these do not come through, the potential deficit could balloon to Rs 843 billion. That implies the optimistic estimate of the budget deficit is 4 percent of GDP, a target agreed with the IMF, while the pessimistic outcome could be much higher. In either case, the government seems wedded to plug its budget gap by borrowing from the banking system, an inflationary measure that also has implications for credit availability for private sector borrowing. If the government continues to muscle the private sector out of the borrowing loop (including through maintaining the present high interest rates regime), we can kiss domestic investment goodbye. Foreign investment too is likely to remain shy in the present state of insecurity because of terrorism and a breakdown in law and order. The revival of the economy therefore appears precariously poised. Gross revenue receipts of Rs 2,732 billion include tax revenue of Rs 2,074 billion, of which FBR’s collection target has been settled at Rs 1,952 billion (up 17 percent on last year’s estimate and 23 percent on the revised figure, a highly optimistic scenario). Rs 500-600 billion additional tax revenue to be collected seems wishful thinking, particularly since the desire for the incremental documentation of the economy made shipwreck in the debacle of the RGST. Given our trade practices, there is every likelihood of these additional taxes being passed on to consumers, heightening inflationary apprehensions. Of the total outlay of Rs 2,767 billion, current expenditure of Rs 2,315 billion includes debt servicing of Rs 1,034 billion (interest on domestic and foreign loans Rs 791 billion, repayment of foreign loans Rs 243 billion). This debt burden takes the lion’s share of resources, while defence gets Rs 495 billion (less than the over Rs 550 billion or so the military reportedly wanted) and development Rs 452 billion. There was perhaps no alternative to continue to follow the pattern of many years now, whereby debt servicing, defence and administration soak up virtually all the resources, leaving little for development. The social sector is always the one to suffer most in such straitened circumstances. Hardly any funds are available for development in health or education. It could be argued that it is now for the provinces, after the 18th amendment, to take up this slack. The jury is still out whether the provinces have the financial and organisational means to make this wish come true. As always therefore, the lenders and guns trump butter and human beings. IMF nostrums have produced the slashing of subsidies by Rs 229 billion to Rs 166 billion. While much can be said about subsidies being abused and not benefiting the target audience, the wholesale withdrawal is bound to cause further hardship for the already overburdened poor. On the other hand, relief of sorts is offered to government servants, serving and retired. Salaries will increase by 15 percent and pensions by 15-20 percent, costing an additional Rs 25 billion. Salaried taxpayers’ exemption limit is to be raised to Rs 350,000 from 300,000 and senior citizens will receive a 50 percent tax exemption over and above the enhanced limit above. These niggardly crumbs from the table of a state and society in which the rich and powerful enjoy the perks and privileges in good times and bad while the ordinary people suffer in both periods, are hardly likely to make a dent in the misery of the masses. Arguably, a deficit budget, whatever level it finally comes out at, will increase backbreaking inflation because of government borrowing. In short, there is little or no good news for the ordinary citizen, only perhaps more difficult days ahead.*