The budget 2024-25 exercise is akin to a five-legged kangaroo - one leg manacled by the International Monetary Fund (IMF), another by an elite refusing to accept a wage or procurement freeze, the third shackled by political allies and the fourth by an increasingly restive public refusing to be appeased by doctored lower inflation and unemployment figures.
When grazing, the kangaroo’s fifth leg, the tail, is operational and is being wielded by the Pakistan Muslim League-Nawaz supremo Nawaz Sharif.
And yet bravado appeared to prevail in the Finance Minister’s speech echoing claims of stability, higher revenue, higher reserves, lower inflation, buoyant stock market and his usual harangue that the way forward is through luring foreign direct investment into the country though he emphasized the need for structural reforms pledging implementation - pledges that were made by former finance ministers while presenting the budget but never implemented.
However as new sovereign guarantees to be issued are budgeted at 403 billion rupees more than the position on 31 March 2024 one may assume that foreign investment inflows will not be extended guarantees.
Muhammad Aurengzeb emphasized that the government would engage only in essential services and not in business – a view of capitalism practiced perhaps only in the United States and redundant in the rest of the world with even European countries sporting a mixed economy with elements of socialism and capitalism.
The Finance Minister’s claim that the government will reduce wasteful expenditure was refuted as he budgeted a current expenditure rise to 17 trillion rupees – 491 billion rupees higher than projected by the IMF in its second and final review of the Stand By Arrangement and constituting a rise of 29 percent from the budgeted amount last fiscal year.
The need for rationalizing data in the current expenditure budget is acute on five items.
First, a pension rise of 122 billion rupees budgeted for next year payable to civilian and military personnel who constitute merely 7 percent of the country’s total labour force – an item funded entirely at the tax payers’ expense.
Calculation of the rise in military pensions shows 79 billion rupees - 662 billion rupees this year compared to 583 billion rupees last year - while civil pensions indicate a reduction of 8 billion rupees when compared to the revised estimates of last year.
Second, mark-up on domestic debt is budgeted to rise by 1525 billion rupees from the revised estimates of last year (in spite of a 150 basis points decline in mark-up on Monday) – 219 billion rupees higher than projected by the Fund in its last report. This is attributable to the budgeted 5142 billion rupee bank borrowings (which includes T-bills, Pakistan Investment Bonds and sukuk) - a rise of nearly 65 percent from the amount budgeted last year and a major contributor to domestic inflation.
Mark- up on foreign debt is budgeted to decline by 1.231 billion rupees which is on the back of external receipts of 5685.8 billion rupees (against 5053 billion rupees in the revised estimates of last year).
The question that was neither posed nor answered is whether the government is relying minimally on borrowing from abroad (apart from IMF’s Extended Fund Facility programme on which negotiations are ongoing) and maximally on foreign investment inflows that have been pledged but not yet disbursed.
Third, civilian administration outlay has been budgeted to rise by 11.4 percent compared to the revised estimates of last year – again an amount that is not justified given the current economic impasse.
Fourth, subsidies were raised by 27 percent with subsidy to power sector (Wapda/Pepco/Kesc) raised by a whopping 103 percent from the revised estimates of last year – from 584 billion rupees to 1190 billion rupees with the privatised KESC allocated 174 billion rupees under tariff differential subsidy – an allocation that undermines the very objective of privatization.
Other subsidies have been slashed and interest free loans to landless farmers in flood affected areas abolished, which may have angered PPP Chairman Bilawal Bhutto-Zardari.
And finally, defense outlay was budgeted to rise by 14.4 percent which can be justified based on the rise in terror attacks as well as the demand for greater security by the Chinese.
Development expenditure has been budgeted at 1400 billion rupees though it is likely that this would be slashed if required to contain the deficit at the end of the year and additionally it has been reported though not confirmed that this item constitutes the implementation of projects identified by Nawaz Sharif though it is likely that some of these funds may have to be diverted to Sindh to appease the PPP that had initially refused to attend the budget session on the grounds that they had not been consulted and which led the PPP Chairman opting not to attend the budget session.
Federal Board of Revenue (FBR) has projected a rise of 40 percent – from 9252 billion rupees in the revised estimates of the outgoing year (a shortfall of 163 billion rupees) and 1857 billion rupees higher than what was projected in the Fund report.
Petroleum levy has been budgeted at 1281 billion rupees against the 960 billion rupees collected in 2023-24 (budgeted at 868 billion rupees) though the Fund had projected 1080 billion rupees from this item next fiscal year. This budgeted rise necessitates upward revision of the levy from 60 to 80 rupees per litre in the Finance Bill – a highly inflationary indirect tax.
And Muhammad Aurengzeb’s repeated claims that PIA privatization will be completed by the first to second quarter of next year is not reflected in the budgeted privatization proceeds at 30 billion rupees.
And finally, unlike previous years the FBR in its usual post-budget interaction with media did not share precisely how much would be generated from each measure, though in a question and answer session it revealed that 1800 billion rupees would be generated from policy and enforcement measures, 2000 billion rupees from autonomous growth, personal income tax would generate an additional 100 billion rupees with property rates raised to generate an additional 125 to 130 billion rupees. So much for greater transparency.
In other words, the budgeted expenditure outlay and revenue surpass the Fund’s projections with the budgeted deficit projected at 6.9 percent against the unsustainable 7.4 percent in the outgoing year.
Primary deficit is budgeted at 2 percent against 0.4 percent in the revised estimates of the outgoing year though the Fund report projected it at 0.4 percent.
The exchange rate has been budgeted at 278 which appears to be an optimistic projection as the usual depreciation of the currency is between 3 to 4 percent per annum.
Copyright Business Recorder, 2024
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