The Budget

EDITORIAL: Federal minister for industries and production Hammad Azhar yesterday presented the federal budget of the Pakistan Tehreek-e-Insaaf (PTI) government. This is for the second time that he presented this government's budget; the first time as minister of state for revenue and this time as the minister for industries and production. The total outlay of the budget for fiscal 2020-21, according to Chapter-I of the Budget 2020-21 document on its salient features, is Rs 7294.9 billion, reflecting a reduction in its size by 11 percent from the budget estimates for fiscal 2019-20. The resource availability for 2020-21 is estimated at Rs 6314.9 billion as against Rs 4917.2 billion in budget estimates for 2019-20 with net revenue receipts estimated at Rs 3699.5 billion, reflecting an increase of 6.7 percent over budget estimates for the current year. The provincial share in federal taxes is however lower by 11.7 percent than the budget estimates for the current year. Net capital receipts are projected to increase by a hefty 75.93 percent Rs 1463.2 billion as against Rs 831.7 billion for the current year. The external receipts for 2020-21 are estimated at Rs 2222.9 billion, reflecting a decrease of 26.7 percent over the budget estimates for the current year.

It, however, needs to be emphasised that the comparisons with budget estimates for the current fiscal year are misleading as none of these estimates was achieved and actual receipts are likely to be at substantial variance with these estimates. For instance, FBR revenue receipts will be about Rs 900 billion lower than the estimates for last year. The size of the GDP suffered a decline of about Rs 3300 billion and the GDP growth from the estimated 3.3 percent according to the government estimates would be negative 0.4 percent whereas the World Bank estimated this to be negative 2.6 percent. The actual budget deficit is likely to be 9.1 percent of the GDP as against the budget estimate of 7.1 percent. It would be fallacious to attribute all these slippages to the pandemic as the data for the period July 2019 to February 2020 clearly showed most targets, except for the current account deficit and the forex reserves, lagging far behind. In fact, the pandemic contributed to papering over the below par performance of the economy. However, the economic team deserves credit that it lost no time and managed to obtain moratorium on debt from the G-20 creditors and also secured funding from the International Monetary Fund (IMF) through its Rapid Financing Instrument (RFI).

Furthermore, the budget estimates for the next fiscal year depict a mirroring of metrics set in the RFI and are unlikely to be realized. For instance, the total revenue target of Rs 4963 billion, a marginal upward adjustment in pay and pensions of government servants for which there was a lot of clamour and slashing of subsidies for the power sector from Rs 201 billion to Rs 124 billion with overall reduction in subsidies by Rs 150 billion. It is apparent that this budget too is an exercise in conforming to IMF stipulations in the RFI and targets set are as unrealistic as was the case in the budget for the current fiscal that conformed to the Extended Fund Facility (EFF) covenant signed with the IMF. It appears highly unlikely that these targets would be achieved as they are way out of line with the ground reality.

The overall expenditure during 2020-21 is estimated at Rs 7294.9 billion, out of which the current expenditure will be of Rs 6345 billion. Rs 650 billion has been earmarked for the federal Public Sector Development Programme (PSDP) while Rs 70 billion will be spent on development outside the PSDP. The budget envisages borrowing from banks to the tune of Rs 916.6 billion and expects to generate Rs 810.35 billion from external resources. Gross public debt increased to Rs 624 billion from Rs 583 billion and is projected to skyrocket to Rs 1178.9 billion in 2020-21.

In his speech, Hammad claimed that the budget aims to strike a balance between corona-related expenditure and fiscal deficit, keep primary balance at a sustainable level, protect social spending under the Ehsaas programme to support the vulnerable sections of society, mobilize resources without unnecessary changes in the tax structure, carry forward the stimulus package, ensure continuation of the IMF programme, keep PSDP at adequate level, give due importance to defence and internal security, maintain housing initiatives and fund the Naya Pakistan Housing project, ensure funding for the erstwhile FATA, Azad Jammu and Kashmir and Gilgit-Baltistan, austerity and rationalisation of expenditures and provide relief to the people as no new taxes have been announced in the budget.

A cursory look at the budget document shows a play of words - semantics, as rates of existing taxes have been enhanced particularly income tax that surpasses sales tax and is projected to emerge as the largest revenue spinner for the government at Rs 2037 billion while sales tax is projected to yield Rs 1919 billion. Except for the real estate and construction sector for which a policy package had been prepared while noted taxation expert Shabbar Zaidi was the Chairman Federal Board of Revenue (FBR) but could not muster approval of the IMF then and has been allowed after the Covid-19 breakout, there is virtually nothing in the budget that can be classified as promoting growth in the economy. Stimulating economic growth is the need of the hour; if the havoc wreaked by the intense contraction in the economy because of the heavily front-loaded conditions of the EFF programme made worse by the coronavirus pandemic, is to be tackled. Had it not been for the State Bank of Pakistan's initiative to provide a credit line and roll out a plan for a payroll loan of Rs 96 billion to businesses on subsidized interest rate of 3 percent per annum for three months many an industrial/business unit would have folded. The budget does not address the drastic fall in exports, support businesses that face imminent collapse that would result in massive job losses pushing many more millions below the poverty line and agriculture sector beset with locust attacks and prospects of production losses. In fact, the already taxed have been loaded with further burden of taxation through enhanced rates.

As regards the much trumped up incentive package for the real estate and housing sector that was heralded as a 'game changer' because construction activity drives scores of different industries that produce different materials used in this sector and also provides employment to all grades of workers from skilled to unskilled there is nothing on the ground to show that it is taking off. The reality is that at least 30 percent of the property buyers were overseas Pakistanis who are now absent from the property market because of the pandemic that has resulted in job losses to our expatriates and reduced incomes. As the situation stands today a lot of our overseas workers are returning home.

Formulation and presentation of the budget in times of the coronavirus pandemic that besets the world at present and is on the ascent in Pakistan at the moment with total uncertainty about its descent is almost an impossible task, particularly for a developing country like Pakistan and therefore, the present budget can at best be viewed as 'work in progress' that would need a revision/tweaking as the economic fallout from the pandemic continues to unfold.