Development, growth promised; PTI unveils Rs8.5 tr budget: PM Imran Khan says all will be happy

ISLAMABAD: Beaming proudly, Prime Minister Imran Khan Friday entered the National Assembly and said all would be happy with the budget 2021-2022.

After chairing the federal cabinet meeting, Imran reached the Parliament House to attend the budget session. On arrival, when a journalist asked him if it would be a people-friendly budget, Imran said, “Everyone will be happy today.”

Earlier, he chaired a federal cabinet meeting and held deliberations on the proposed budget, which is the third, presented by the government. Meanwhile, the government pledged billions in development spending on Friday in a Rs 8.487 trillion deficit but expansionary budget for the upcoming fiscal year of 2021/22 to sustain an economic recovery from the Covid-19 slump - a move that will likely to take public finances further into the red.

The government boosted development spending in theFY22 budget by over 40 percent to Rs900 billion even as the fiscal deficit, the gap between its revenue and expenditure, is expected to hit 6.3 percent of gross domestic product next year.

The budget deficit will be Rs3.99 trillion. It is sizably high over current fiscal’s budgeted deficit of Rs3.437 trillion. The deficit, however, planned to trim by 1.8 percentage points through fiscal adjustments from an estimated gap of about 7.1 percent in the outgoing fiscal year. Similarly, the primary deficit for the FY22 has been targeted at 0.7 percent of GDP (or Rs360 billion).

Saukat Train, PTI's fourth finance minister in three years, in his budget speech said the economic growth of 4.8 percent is targeted for the fiscal 2021/2022 to fast move the wheal of economy and get more revenues and create jobs.

"I feel happy in announcing that the stabilization phase is now over, and Budget 2021-22 will focus on inclusive and sustainable growth," Tarin said in his budget speech in the National Assembly amid noisy protest by the parliamentarian of opposition parties. "The budget 2021-22 will be about fostering growth and investment."

The economy grew 3.96 percent in the outgoing fiscal year, but GDP figures have left economists dazed, and have also raised fresh doubts about the quality of the country's official economic data reporting. The IMF forecasted Pakistan’s economy is likely to expand only 1.5 percent, while World Bank projected GDP growth of 1.3 percent this year.

Analysts said the government claimed to presented pro-growth budget but it also took steps in line with the IMF conditions, as the government projected to get budgetary financing of Rs 496 billion for the next fiscal year.

It is to be noted that the IMF usually provided balance of payment support but this kind of budgetary support projected by the official documents demonstrates that Pakistan and the IMF have broadly evolved consensus on macroeconomic framework. The government also projected to increase petroleum levy to Rs 610 billion in the next budget clearly indicating that the government will have to charge Rs30 per liter levy from start of the July 1, 2021.

Amid Pakistan and the International Monetary Fund (IMF) are at loggerheads, as the Fund is asking Islamabad for jacking up power tariffs and taxes on personal incomes which Pakistan has termed as a ‘redline’.

This has put the sixth review of the Fund with Pakistan in doldrums. Tarin the other day while presenting the annual blueprint of the economic performance of the outgoing fiscal had said that we would surely achieve the revenue targets, but not at the cost of taxing the poor Pakistanis. However, he said we would reach at amicable agreement, as talks with global lender is underway.

But, while having a cursory look the budget documents, it seems that Islamabad and the Fund have reached at an agreement, as over Rs500 billion additional taxes will be collected through enforcement and tax measures.

The government has estimated gross revenue receipts (tax and non-tax) at Rs7.909 trillion. Of this, the FBR tax revenue target has been fixed at Rs5.829 trillion which is almost the same figure what the IMF has been demanding. In absolute terms, the FBR tax collection is Rs365 billion more than FY21 revenue target.

Tax revenue of Rs5.8 trillion has been targeted in the next fiscal year, compared with Rs4.7 trillion target in the current year. The government projected Rs2 trillion in non-tax revenue during the next fiscal year. Rs3.99 trillion deficit will be plugged by Rs1.2 trillion in external financing and Rs2.4 trillion in domestic financing, with the remainder from Privatisation proceeds.

Interestingly, the direct taxes have been kept almost unchanged at RsRs2.18 trillion, while indirect taxes have been increased by huge Rs727 billion to Rs3.647 trillion for next year, what the independent economists believe that it will be ultimately taken from the common consumer.

The non-tax revenues including levies & fees, income from property & enterprise, civil administration and other receipts from petroleum sector has been earmarked at Rs2.08 trillion.

The government will collect Rs610 billion petroleum development levy, Rs36 billion gas development surcharge, Rs65 billion royalties on natural gas and Rs130 billion Gas Infrastructure Development Cess (GIDC).

Of the gross revenues, the center will transfer Rs3.412 trillion to provinces under National Finance Commission (NFC), leaving only Rs4.497 trillion net revenues with the government while the total expenditures have been budgeted at Rs8.487 trillion. This led to a gap (budget deficit) of Rs3.99 trillion.

This huge deficit would be met through Rs1.246 trillion external financing that include bilateral donors and other commercial borrowing. Besides, Rs2.492 trillion will be arranged from domestic sources including national saving schemes, local commercial banks borrowing, while Rs252 billion would be arranged through privatization of public entities during FY22.

On expenditure side, the current expenditures will be Rs7.523 trillion. Of this total amount, the interest payment on local and foreign loans will be the biggest expenditure head by consuming Rs3.06 trillion.

Defence expenditure is the second biggest head, for which Rs1.37 trillion have been earmarked against current fiscal budgeted amount of Rs1.29 trillion depicting an increase of 6.28pc. The current year’s revised defence budget is Rs1.326 trillion. Grants and transfers to provinces will stand at Rs1.168 trillion, spending on pensions will be Rs480 billion.

The government allocated Rs682 billion as subsidies (to wapda/pepco, petroleum, KE, USC, PASSCO etc) while for current fiscal it was Rs209 billion. Of this, wapda/pepco will get Rs245 billion against Rs129 billion during this year. Around Rs85 billion will go to Karachi Electric Supply Company (KE) and Rs266 billion will be transferred to Power Holding Private Limited (PHPL) and repayments to Independent Power Producers (IPPs).

For the public sector federal government employees, the government announced the addition of an ad-hoc relief of 10 percent in the salaries and pensions of federal government employees.

The government also proposed an increase in the orderly allowance from 14,000 to Rs 17,500 per month. Apart from this, the integrated allowance of grade 1 to 5 employees was increased from Rs 450 to Rs 900. Similarly, to minimize the inflationary pressures, especially on the laborer’s and workers, the government has increased the minimum wage to Rs 20,000 per month from Rs17,500/month. Besides, the government has not changed the taxable income slabs salaried class.

The government has decided to provide support for 4-6 million low-income households, through Interest free business loans (up to Rs5 lakh), Interest free farming loans (up to Rs.2.5 lakh), Agri-equipment loans (up to Rs.2 lakh).

A Rs33 billion fund has been allocated to subsidize low-income individuals, who can get a subsidy of Rs3 lakh for house construction. Besides, Rs. 100 billion has been allocated for construction of four hydropower dams (Dasu, Diamer, Mohmand, Neelum Jhelum). For Ehsas program, the funds allocation has been increased by 24 percent to Rs210 billion.