The government on Friday unveiled a Rs14.5 trillion budget, with over half set aside to service Rs7.3 trillion of debt.
Pakistan's economy has been stricken by a balance-of-payments crisis as it attempts to service crippling external debt, while months of political chaos have scared off potential foreign investment.
Inflation has rocketed, the rupee has plummeted, and the country can no longer afford imports, causing a severe decline in industrial output.
About Rs950 billion have been earmarked for vote-winning development projects ahead of a general election later this year, while other populist measures include civil service pay rises of up to 35% and a 17.5% increase for state pensions.
Presenting the budget to the National Assembly, Minister for Finance and Revenue Ishaq Dar insisted targets had been prudent.
"There are general elections in the country soon, but despite that the next fiscal-year budget is prepared as a responsible budget instead of an election budget," he said.
With some economic experts voicing concerns, others have applauded the government for introducing “a budget which has a direction”.
This budget reflects that the government is short on ideas, has no clue about the reforms that are needed to rescue the economy, and is an attempt to get the PDM across the election line.
The assumptions in this budget are laughable at best and if executed, it will stoke more inflation in the economy.
Not against my expectations but definitely against my wishes because a normal budget was presented with a 6.5% fiscal deficit target when there is a crisis-like situation.
An ideal situation would have been to cut down expenses or at least contain them, but salaries have been enhanced by up to 35%.
On the other hand, the revenue target of Rs9,200 billion should be higher than the one which has been envisaged. Only then could our fiscal deficit have been lower than 5%.
The primary deficit target was projected by IMF at 0.5%, and the government set it at 0.4%, but I think fiscal deficit would be a problem, and we have to see how the Fund responds to it.
It is crucial to see whether the lending agencies are happy with this as hoped by the prime minister, and if they aren't, then we may have to revise it.
It’s a budget "as usual" at "unusual" times. It fails to take the opportunity of fundamental reforms by taxing the untaxed and under-taxed sectors —wholesale, retail and real estate. Nor is there a mention of steps to harvest data of non-filers and NADRA to widen the tax base. Nothing on stemming under-invoicing. The "no new taxes on industry" claim is belied by an increase in super tax and that too in not a fully progressive way.
Having said that there are a few good measures. The focus on agriculture, especially on seeds and mechanisation is good as is on promoting IT and IT-enabled exports. The reduction in minimum tax on listed companies is a step in the right direction. However, the opportunity of encouraging consolidation and widening the shareholder base by removing the double taxation of intercorporate taxes was missed. The proposals on youth entrepreneurship and SMEs will support employment and startups though the idea of the government running a venture capital fund is flawed in that risk-taking is not what bureaucrats are trained or encouraged to do. It would be far better for the government to endure that the fiscal policy supports venture capitalists and private equity funds.
Business will derive confidence from the limited mention of steps taken to revive the IMF program especially also as there was no mention of how debts would be reprofiled.
The tax collection targets look unrealistic and the increase in government salaries and pensions will put pressure on the fiscal deficit. A mini-budget is inevitable.
What will change? Will more than 3% of taxpayers contribute 90% or more to direct taxation? Will retailers and the agri sectors that together contribute 40% contribute more than 2% as a result of the budget? No.
Through the fiscal deficit, the government is increasing the problems for itself. Also, the IMF will raise objections to it. Moreover, the annual development plan proposed for four months in Punjab is enormous as when we multiply it by three, it exceeds that of the federal budget, and the same goes for Khyber Pakhtunkhwa.
But the good thing is that there is a direction in the budget — when it comes to agriculture, the revival of industry, and exemptions in imports. The other positive things include health insurance initiatives for journalists.
The budget could have been better, and it is better than the one PML-N presented in 2018. But I think the IMF will challenge the revenue stream and ask Pakistan to change the numbers.
The budget is unlikely to improve the chances of an SLA in June. IMF will likely ask for additional revenue measures of Rs500-800 billion. Expect a mini-budget when a new programme is being negotiated.
It is surely not a budget that the IMF would approve of. There is no control over fiscal expenditures. Meanwhile, they've announced a dollar amnesty which the IMF doesn't like.
It is a plain-vanilla budget with no path to structural reforms. No new sectors are being taxed. There's been a maximum increase in pension and government employees' salaries. 50% or more will go towards interest payment, which is the same old story we've seen over the years.
Capital market investors will not like the increase in super taxes and re-imposition of taxes on bonus tax.
Lastly, withholding tax on cash withdrawals is negative for improving financial inclusion. This will increase currency in circulation and grow the cash economy, and also create more upside pressure on inflationary readings.
So far, I don't see any major deviations from the IMF path. This does not seem like an election budget full of populist action other than increasing salaries for government employees. However, will need to see the budget statistics for a test of logic.
Given the current scenario, the budget is balanced as all IMF conditions are being met to revive the programme, especially keeping interest rates positive.
The regional energy price budget, which has built-in cross-subsidies, general collection and distribution losses, is something the export industry cannot sustain.
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