The pertinent question about the current budget is whether it is realistic or artificial, as much improved budgetary proposals have been outlined before the National Assembly without any back-support of revenues and IMF program.
Hassan Baig
The budget 2022-23 presented in the National Assembly of Pakistan by finance minister Ishaq Dar on 9th June is quite optimistic. He has taken care of all segments of the society, although there was no room available due to fiscal constraints.
He has provided, in fact, a conceptual space in the budget 2022-23 covering famous 5 Es model of development, as enunciated by the Planning ministry duly approved by the National Economic Council (NEC). The 5 Es are: Exports, E-Pakistan, Environment and Climate change, Energy and Infrastructure and Equity & Empowerment.
The prime minister of Pakistan is quite optimistic about restoration of IMF program to be concluded by 30th June this year. But apparently such optimism is without cogent reasons, as IMF’s closely watched budget of Rs14.46 trillion was presented by finance minister in the National Assembly but IMF did not show any confidence on it.
The elections are in the offing; that’s the basic reason to incorporate a good conceptual space taking care of salaried class, youth, development side and poor segment of the society in the budgetary proposals, although fiscal space was not available.
The development budget has also taken care of infrastructure development as per 5 Es framework: a multi-pronged strategy to turn around Pakistan by putting it on high sustained growth trajectory. That is the reason the government is going to extend exemption from customs on import of solar panels, batteries etc. along with incentives to IT and IT enabled services to help boost IT exports.
The budget for social safety net program (BISP) has been enhanced by around Rs43.5 billion while taxing the rich and wealthy of the country. The government has imposed additional taxes of Rs223 billion by jacking up sales tax to 18% on edible oil and brands, but no question to be asked to bring back remittances up to US $100,000 in a year.
The loans to farmers for agriculture and industry have been increased by enhancing loans limit from Rs1800 billion to Rs. 2250 billion by further abolishing all sorts of taxes on seeds. The subsidy on fertilizer has also been increased to help boot agriculture and agriculture related industry. While admitting agriculture as backbone of the economy, the incentives have been extended to this vital sector of the economy which would definitely bring good results in the next financial year.
It is one of the best budgets in the given circumstances, as it has highlighted Rs 950 billion development budget while increasing salaries (30-35%), pension (17.5%) with a Revenue target of Rs 9.2 trillion. The budgetary proposals need to be evaluated properly, as Pakistan is right now facing default challenges in the absence of IMF program with meagre amount of foreign exchange reserves.
The inflation is at the highest level touching around forty percent, whereas currency also depreciated 40% in one-year time touching around Rs. 300/dollar, which is drastic and detrimental by all means. The world rating agencies are also predicting sovereign default in case the IMF does not restore EFF program concluding on 30th June, 2023. And frankly, there are almost nil chances for restoration of IMF program, hence to be recognized another hurdle on the way to development.
Pakistan is vigorously pursuing in close coordination with friendly countries to re-profile and restructure loans. The finance minister is blaming IMF being not fair with Pakistan, as according to him they are contributing in political instability for no fault of us. He means to say that the country is being trapped as part of geo-politics disturbing the whole concept of geo-economics.
Pakistan is already in talks with friendly countries to restructure bilateral loans, as we can service interest payments and principal loan amount could be staggered for more years. Further, the loans could be re-profiled by rolling over like we are doing in the case of China and Saudi Arabia. But the main question is to how long this practice of re-rolling the loans could continue in the absence of any long term planning to retire this debt.
Pakistan has set target of achieving 3.5% GDP growth with average inflation of about 21% in the coming fiscal year. It is quite interesting to see targeting inflation at 21%, whereas 21% interest rate by the State Bank of Pakistan is already a big hurdle in investment in the country. The contradictions are so very obvious that one can’t imagine accepting by any state to target inflation at 21%, which is the main cause of trouble in the economy.
The outgoing fiscal year has outlined a meagre 0.29% GDP growth, which is a matter of concern and depression for any financial manager of the country. As everything is topsy-turvy in Pakistan, especially economy is the main concern as almost half of the population is living below the poverty line. The crime rate is alarmingly high due to high inflation, unemployment with almost nil investment due to high interest rate.
The main question about this budget is whether it is realistic or artificial, as a much improved budgetary proposals have been outlined before the National Assembly without any back-support of revenues and IMF program. The government apparently seems clueless having nothing in sight to pursue their dream proposals to get country out the current mess or for that matter current quagmire.
The woes are further added by keeping inflation target as high as 21% without outlining any plans to reduce it to help save economy from total disaster. The election year is one of the compulsions for the present government whose tenure is going to last for another month or two to highlight best of the budgetary proposals to help win elections facing the most popular opposition.
Apparently, the government has proposed various action to support her budgetary proposals including but not limited to imposition of super tax of about 50% on extraordinary gains owing to exogenous factors. Three slabs have been added to super tax with rate hiked to 10% with rationalization applying all persons across the board earning income above Rs150 million in a year.
The additional taxes of Rs223 billion have been proposed along with further action against smugglers, racketeers and extortionists. The revenue targets could only be achieved if the economic performance during the year is on the mark, and economic performance depends on the large scale manufacturing, investment in industry and exports during the year.
The government bets on relief and amnesty with bloated outlay carrying burden of 50% deficit touching around Rs7.6 trillion. The finance minister is boasting his finance bill financially responsible while ruling out restoration of IMF program. The election budget presents an attraction for the public before the elections, where the government trying to win back a rare public support before upcoming polls.
Reducing POL prices just before presenting the budget was another step to lower public anger or outrage. The government has successfully played a balancing act by unveiling balanced budgetary proposals in the difficult circumstances. But one should expect mini-budgets once this government is gone and caretaker set up comes in, as apparently resources don’t match with outlined expenditures to run the affairs of the state.
The government has put in sincere efforts to achieve the target of macroeconomic stability and financial discipline through effective macroeconomic policy framework in the next fiscal year’s budget. The government has also prioritized by allocating a hefty amount for protection of the poor to protect the vulnerable segments of the society.
In fact, a conceptual framework has been outlined in the budget for the financial year 2023-24 to take care of poor masses under high inflation with almost no employment opportunities. Let’s hope the dream targets set for the budget come true and the concept enshrined in the budget for welfare of the masses becomes a reality.
The writer is a former civil servant and
Islamabad based
Independent Economist.
Pakistan Rupee Exchange Rate