AMID ANOTHER week of misgivings about the war in Iraq, the Budget season was launched last week with traditional ceremonial. It marked the start of a new parliamentary session which had its own misgivings about the state of the nation and the economy in particular.
Thus the tabling of the 2003/4 Budget Estimates by the Minister of Finance was anxiously anticipated. The decision to increase the budget by $37 billion or 15 per cent (reflecting a real seven per cent, given an inflation rate of near eight per cent) caught many analysts by surprise.
This is so as given the expectation of a tight budget, there was the feeling that the size of the budget would be kept close to the $223 billion revised budget that obtained last fiscal year.
That apart, however, the estimates were consistent with expectations. For one thing, there was the dominance of the budget by debt payments, with $156 billion allocated for debt servicing, which is $51 billion or 48 per cent higher than what was spent last year to maintain the albatross of debt that now stands at $570 billion.
As a result of this, the pattern of the Ministry of Finance getting the lion's share of the budget allocation was maintained. The ministries of National Security, Education and Culture maintained their pride of place as the sectors that placed third, fourth and fifth respectively.
It is noteworthy that the capital side of the budget that has traditionally been the largest casualty of the increase in debt servicing, increased by $34.4 billion or approximately 81 per cent higher than the amount allocated last year. Unfortunately, it is too early to celebrate this as a positive development, as it is now the custom for Government to slash the capital budget as soon as the economic realities set in and the budget numbers are revived downwards when the supplementary budget is presented.
It is not clear from the estimates presented so far what assumptions the authorities are making about the level of interest rates. It is argued, however, that the $79 billion allocated for interest payments suggests that a 18-20 per cent interest rate is anticipated. It is of course difficult to comment on the practicality/feasibility of these possible interest rate levels until the revenue numbers are presented.
On the positive side, it is noteworthy that the Government plans to increase its provisions for a Social Safety Net to protect the most vulnerable groups. Ultimately, however, Government's ability to deliver on this promise will depend on the sustainability of the overall budget.
