Govt unveils Rs14.7tr budget today

ISLAMABAD: The government will unveil the next budget 2023-24 on Friday (today) with a higher consolidated budget deficit of over 6 per cent of GDP. It will also dole out funds on different targeted schemes to lure voters in the next general elections. With a proposed outlay of Rs14.7 trillion, the government has set FBR’s tax collection target at Rs9.2 trillion, and the nontax revenue target of Rs2.7 trillion. For the nontax revenue target, the government plans to secure powers by amending the finance bill to jack up the Petroleum Development Levy (PDL) from Rs50 per litre to Rs55-60 per litre in order to collect Rs870 billion in the next budget against revised estimates of Rs550 billion for the outgoing fiscal year.

The lack of credibility of the budgetary numbers will continue haunting the economic managers because they will keep changing during the course of the financial year. If the new government comes into power after the next general elections, it will have to introduce a mini-budget in order to align the economic realities with the IMF for securing a fresh bailout package. It is yet to be seen how Finance Minister Ishaq Dar will make last-ditch efforts to satisfy the IMF on the revival of the stalled programme; the continuing stalemate might jeopardise the dwindling foreign exchange reserves, which already decreased to below $3.9 billion held by the State Bank of Pakistan (SBP).

Without striking a broader budgetary framework with the IMF, it will become impossible to sign the staff-level agreement (SLA), so all will depend upon fulfilling three conditions, including securing external financing of $6 billion, unveiling the next budget in line with the IMF guidelines and ensuring a market-based exchange rate. The IMF programme will end on June 30, 2023, so there is no possibility of any further extension as described by the finance minister in his presser on the occasion of launching the Economic Survey for 2022-23. There is a credibility gap on the sanctity of the budgetary numbers because changes are made on a frequent basis during the course of the year, so there is a need to present a realistic budget for the next financial year.

The tenure of the Pakistan Democratic Movement (PDM)-led government is going to expire on August 12, 2023. However, the government has approved the allocation of Rs90 billion for the execution of the SDGs Achievement Programme (SAP) for the next budget against the revised allocation of Rs116 billion for the ongoing financial year. The first and foremost priority of the government will be ensuring external debt servicing, which requires $25 billion in the next budget. It is yet to be seen how the government plans to generate such a whopping figure when it had secured just less than $8.1 billion in the first ten months of the current fiscal year out of the total budgeted figure of $22.8 billion on account of external loans and grants.

The fiscal constraints pose serious challenges as the total net revenue receipts of the federal government will remain insufficient to meet debt servicing requirements. The total net receipts of the federal government will be standing at Rs6.5 trillion after transferring resources to provinces and taking into account the nontax revenue. The total debt servicing will consume Rs7.5 trillion. So the federal government will witness a deficit of Rs1,000 billion. However, all other heads of expenditures, including defence, salaries, pensions, running of civil government, subsidies, grants to public sector enterprises and others will have to be borne through borrowing. The finance minister announced during the launch of the survey that the government would do its best to increase salaries, pensions and minimum wages of workers in the budget for FY2023-24. Pakistan will have to acquire Rs7,000 to Rs7,500 billion in domestic and foreign loans to finance the yawning budget deficit for the next financial year. There are no easy solutions ahead, so deep-rooted structural reforms will be needed to steer the economy out of the crisis mode.