The economic performance of the present PPP-led government has been extremely disappointing, to put it mildly. Even after three and a half years of its rule and the presentation of its fourth budget, there are few signs of improvement in the economy. The GDP growth rate, which was estimated to be as low as 3.8 percent during 2009-10, further declined to 2.4 percent during the last financial year. As against that, the Indian economy has been growing at the rate of about 8 percent for the last several years. It is not surprising, therefore, that the proportion of the population living below the poverty line has gone up significantly in Pakistan. The rate of inflation escalated to 14.1 percent in 2010-11 as against 11.7 percent in the preceding year. The number of the unemployed has been steadily increasing during the tenure of the present government. It is a measure of the incompetence of this government that it has not been able to bring about any improvement whatsoever in the energy crisis marked by long hours of electricity loadshedding with consequent inconvenience to domestic consumers and adverse effects on the productivity of the economy. The lackluster budget presented by the Finance Minister for 2011-12 basically reflects the current PPP-led governments allergy to innovative approaches and radical economic reforms to accelerate the countrys economic growth rate and enhance the well being of the common man. A lethal combination of incompetence and corruption on the part of the present government is the main cause of the serious economic problems confronting the country. The seriousness of the nations economic malady demands radical surgery, but our leaders and economic managers are content with serving palliatives. In addition, our ruling classes are busy in plundering the resources of the country for their personal benefits, instead of devoting themselves wholeheartedly to enhancing the welfare of the people. It is sickening to see their lavish lifestyle against the background of the extremes of poverty in the country. Corruption in various forms by the political leaders and senior officers of the civilian and military establishment has become the order of the day. No wonder, the Transparency International ranks Pakistan amongst those countries where the corruption level is extremely high. The latest budget is another example of the incompetence of our economic managers and the unwillingness of our political leadership to rectify the situation. The taxation system to raise revenues for the government remains heavily dependent on indirect taxes, which are retrogressive in nature burdening more the relatively low income groups, rather than the well-to-do classes of the society. Out of estimated total tax revenue of Rs 2,074 billion, only Rs 743 billion would be raised through direct taxes and the rest through indirect taxes. Thus, our taxation system will remain inequitable as in the past with the rich continuing to avoid paying their dues to the society either by remaining outside the tax net (e.g. agricultural tax) or by avoiding to pay taxes due from them through non-filing of tax returns or other methods. Unfortunately, our political leaders, with some exceptions, are the worst performers in this regard instead of setting an example for others to follow. Little wonder that in Pakistan the tax to GDP ratio remains as low as 10 percent against the average of 15 percent in the developing countries and as high as 40 percent in some developed countries. The federal budget for 2011-12 remains heavily skewed in favour of current expenditure, despite some improvement compared with the situation in the preceding fiscal year. Out of the estimated overall expenditure of Rs 2,767 billion, current expenditure would amount to Rs 2,315 billion or 83.7 percent of the total expenditure. The federal development expenditure would be only Rs 452 billion. It is interesting to note that the federal governments current expenditure would exceed its total internal resources, including revenue and capital receipts by Rs 265 billion. Thus, the federal government would remain totally dependent on foreign loans not only for financing its development expenditure, but also for a large chunk of its current expenditure. This is a sure recipe for aggravating the debt trap in which the country now finds itself. The situation is even more dismal, if one analyses closely the sectoral distribution of the current expenditure in the budget for 2011-12. Debt servicing alone would account for Rs 1034 billion constituting about 44 percent of the total current expenditure. The defence sector would claim a total of Rs 718 billion, including Rs 495 billion for defence affairs and services, Rs 150 billion for armed forces development programme and other military related items, and Rs 73 billion for military pensions. Therefore, the total allocation for debt servicing and the defence sector would amount to Rs 1,752 billion by far exceeding the net revenue receipts of the federal government of Rs 1,528 billion. That is to say, the federation is running the civil government and its developmental activities entirely on internal and external loans No nation can survive for long with such mismanagement of its financial affairs. In order to overcome its financial problems, the federal government must adopt innovative and radical measures for widening its tax base and improving its taxation machinery to raise the tax to GDP ratio to 15 percent within the next few years and, thereafter, to more than 25 percent in accordance with the experience of the fast developing economies. This effort must be combined with drastic measures to limit and even reduce the current expenditure. The starting point for such an exercise must be strict control over the defence expenditure, which at the moment claims approximately 47 percent of the net revenue receipts of the federal government. In addition, the nation as a whole must adopt a simple lifestyle to raise the national saving rate so as to eliminate or, at least, reduce dependence on external loans. Obviously, the onus for this change lies on the elite of the society, including our political leaders, senior officers of the military and civil establishment, feudal landlords and top industrialists and businessmen. In particular, our political leadership must adopt an austere lifestyle to set an example for the rest to follow. Instead of merely preaching to others, they must realise that like charity, austerity begins at home. Finally, the government must change its priorities in favour of economic development and welfare, as against the military expenditure, and within the development activity in favour of education and health. It is the lesson of history that the decline and fall of nations took place when they sacrificed their economic strength for the sake of the military. A heavy military superstructure cannot be sustained on weak economic foundations, as is the case currently in Pakistan. The Soviet Union disintegrated not because of the shortage of modern weaponry, but because its economy could not sustain its military superstructure. Our leaders must learn to strike the right balance between the military expenditure necessary for immediate security and the development expenditure necessary for economic growth and long-term national security. As for the focus on education, suffice it to say that the modern history does not present even a single example of a nation that has prospered while neglecting the education of its people. It is, therefore, a matter of great disappointment that during the last fiscal year our national expenditure on education declined to 1.8 percent of GNP, as against the international norm of 4 percent. The national expenditure on health amounted to only 0.2 percent of GNP during the same period. Unfortunately, the latest budget and the governments announced policies do not hold the promise of a change for the better. The current policies, therefore, hold the frightening prospect of turning us into a nation of impoverished, sick and illiterate or semi-literate people. n The writer is a retired Ambassador. Email: