The Bigger Picture

Editorial

By MK

Huge expectations are built up in diverse quarters each year preceding the Budget Speech. This year was no exception. Members of the public and the private sector waited with bated breath the new set of measures that were to be announced on Friday last. Each wanted to know what was in store for him.

With the help of the media, Ministers of Finance have cast themselves in a novel tradition for many years now, transforming themselves into glamorized celebrities the moment of the budget speech. The tradition was kept up last Friday. The Minister was caught in the glare of publicity even before he gave out his speech. Expectations ran high on both sides.

On its part, the opposition was sharpening its attack, readying to trounce the Minister on presumed inevitable failings that the budget would have. For the opposition, the budget was bound to be a failure even before its contents were known. This is the ritual.

Yet, if one were to look at the history of nations, many budgets have had barely any positive impact. Some have chased statistics (budget deficit, GDP, FDI, inflation, unemployment, etc.) in an ostentatious manner to measure ministerial or governmental performance. Others have been raisers of additional taxes from year to year to balance accounts threatening to tilt over dangerously to the wrong side as spending has kept increasing without, in many cases, tangible positive outcomes. Some have become better known as conjunctural distributors of freebies across the board. Still, others have been simply heart-breaking, having put the bets on a larger number of wrong decisions than the right ones. A few only have helped to create a turnaround for the better and given positive direction to the economy, seen from an individual perspective. On the whole, however, notwithstanding underperforming individual budgets, the economy has progressed during the past five decades.

Many of the concrete decisions taken and implemented from time to time at the initiative of public and private stakeholders to create and uphold growth did not emanate from actual budgets. Important breakthroughs with uplifting effects on the economy were made according to circumstances as and when they presented themselves. True, tax incentives were given later when the economic activity was already on. In other words, emergence of new areas of growth did not have to wait for favourable budget decisions. The opportunities were seized irrespective of benefits the budget might confer: it would have been irrational to wait for suitable budget benefits to, for example, adopt information technology to improve the efficiency of the workplace.

This is why it will pay to demystify the huge importance attributed to single budgets. It is simply incorrect to consider individual budgets as the be-all and end-all in the life of nations at a point in time. Work to consolidate the economy has been done before. What is required is to keep on track those past policies. It would of course be useful to introduce new measures to respond to unforeseen developments or new opportunities arising but that can be done without having to wait for a budget.

It is felt therefore that budgets should essentially form part of a carefully thought-out and feasible general framework of long term economic development as set out in a governmental programme. That should take away all the hype created around them. Obviously, governments should lay down their annual revenue collection and expenditure plans in the light of last year’s performance. But the short term outcomes need not dwarf the long term objectives. A reallocation of resources could well be decided on the basis of performance, given the economic and social objectives of the underlying government programme. That will force makers of annual budgets to have a strong focus on desired outcomes and, hence, to take necessary action to remove any bottlenecks in the system preventing the realization of targeted strategic economic objectives.

Let’s understand what needs to be pursued from budget to budget. Consider the global economic downturn of 2008. Depressed external markets meant that our exports of goods and services will face sharper competition in time. Falling private sector investments as from 2009 indicated that a concerted plan of action needed to be hammered out at the earliest between the public and private sectors to reverse this negative trend to change course. The long term remedy would have consisted of certain policy responses from our decision-makers.

One of them would be to beef up our productivity and, hence, our competitiveness. Another response would have consisted of enlarging the base of our economic activity by grooming up new sectors that are less dependent, at least for the time being, on the affected external markets. That would have required the creation of more and diversified skills for our workforce. In addition to developing a new range of local entrepreneurship to make the private sector more dynamic in the context, policy makers could also have contemplated initiating a set of locally and regionally integrated economic activities. A new breed of SMEs capable of working with international markets with a reputation for quality and innovative products could have been groomed up as a means of adding value to our production. These objectives cannot be implemented in a single budget. However, each year’s budget could take stock of progress made in the overall framework and readjust the allocation of resources as necessary.

In this context, the role of the government would not necessarily be to itself engage in the activities. Its role is to guide the private sector rather to adapt to the changes taking place the immediate effect of which was to substantially narrow down our exporting scope as from 2008 barring a few spikes in a year or so. It would concentrate on pulling us off the beaten tracks at the earliest. The government were best doing its job as a regulator to ensure that standards are complied with. As a legislator, it would set down clear rules of behaviour for one and all. When government thinks and acts along these lines, it goes beyond the role of a sheer giver of benefits left and right from one budget to the other. It helps create production capacity along well set prior objectives. We are not quite clear where we stand with respect to the bigger picture and that is where the shoe is pinching by focussing instead on one budget after the other.

It is not the fault of Minister Duval if all this was not minutely detailed out as part of a comprehensive roadmap as from 2008 on what path to follow to overcome our shortcomings which showed up in slowing rates of economic growth since after this year. In the presence of a clearly set out plan of action, all that the Minister had to do was to rectify any departures from the desired results. In such a case, people would have seen clearly into the extent to which progress is being realized in targeted sectors of development. This monitoring aspect was lost sight of at some time and unfortunately, we appear to be going in an ad hoc manner when the scale of the international crisis dictated that we should have collected our mind once and for all.

* Published in print edition on 16 November 2012