ISLAMABAD: The Policy Research Institute of Market Economy (PRIME) has stated that the coalition government has presented an “unrealistic and expansionary” budget for the fiscal year 2023-24, which falls short to boost confidence.
The institute acknowledges that the coalition government has presented the budget for the fiscal year 2024 amid insurmountable challenges with stalled International Monetary Fund (IMF) programme on one hand and upcoming elections on the other.
Though the government claims that the budget coincides with the IMF framework, yet the reality is in contrast and effort has been made to restore political capital to win elections.
PRIME believes that the budget presented by Finance Minister Ishaq Dar is void of any mechanism to promote stability and sustainability. The budget is based on overly ambitious revenue targets with 23 percent increase in the FBR tax revenues from Rs7,470 billion to Rs9,200 billion and 53 percent increase in non-tax revenues from Rs1,935 billion to Rs2,963 billion.
However, in the outgoing fiscal year, neither the government was able to achieve the tax revenue target, nor the non-tax revenue target. Therefore, such an increase without any initiative to broaden the tax base is likely to result in higher-than-anticipated fiscal deficit.
In the outgoing year, on the tax revenue side, the target is likely to be missed by more than Rs500 billion due to administrative restrictions on imports as the government collects more than 50 percent of tax revenues at the import stage.
The FBR was able to collect Rs6,210 billion till May 2023. On the non-tax revenue side, the government is likely to miss the target by more than Rs200 billion as the government collected Rs362 billion as petroleum development levy till March against the target of Rs855 billion due to the fall in the sale of petroleum products by more than 20 percent.
Pakistan being downgraded by three international rating agencies cannot borrow money from international financial markets and with reserves only sufficient for one month of imports and the IMF programme in limbo, government will excessively borrow from domestic commercial banks thereby not only crowd out the private sector but also increase the public debt exponentially.
PRIME also believes that the expenditure side of the budget manifests business as usual and skewed towards restoring political capital for upcoming elections. The budget is expansionary in nature with an increase of 52 percent in total expenditures from budgeted Rs9,520 billion in FY 2023 to Rs14,460 billion in FY 2024.
The budget unveils a lack of prudence of the government to improve the allocation of public tax money where Rs1,074 billion will be spent as subsidies, which is a cover for the government’s failure to minimise losses and inefficiencies.
The budget also unveils a crisis in the making completely ignored by the successive governments. The pension liability has surpassed the federal government expenditures. The pension expenditure is Rs761 billion and the expenditure to run the federal government is Rs714 billion.
While the finance minister proclaimed the raise in salaries and pensions of the government employees, no effort is being made to improve the public service delivery. The payment of pension liabilities out of the budget is unsustainable and likely to result in the collapse of public finance if remains neglected for several years.
The proposed budget is inconsistent with the IMF framework and it is highly expected that the current IMF programme will end without completion. The budget manifests that the government fails to acknowledge that successive huge fiscal deficits are underlying cause of recurring economic crises.
Excessive spending to achieve high growth on the back of domestic and external borrowing has not only resulted in an accumulation of debt and colossal debt-servicing liabilities but also contributed to the exploitation of citizens in the form of continuous increase in taxes and inflation through increase in money supply.
Copyright Business Recorder, 2023
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