A budget for elections…Hassan Baig
The budgetary proposals presented in the National Assembly of Pakistan by Finance Minister Ishaq Dar on June 9 are quite optimistic. He has taken care of all segments of society although there was no room available due to fiscal constraints.
Dar has covered the famous 5Es model of development as enunciated by the planning ministry duly approved by the National Economic Council (NEC). The 5Es are: exports, e-Pakistan, environment and climate change, energy and infrastructure, and equity and empowerment.
The prime minister of Pakistan is quite optimistic about the restoration of the IMF programme which is supposed to be concluded by June 30 this year. But apparently such optimism is without cogent reasons, as the IMF did not show any confidence on the Rs14.46 trillion budget presented by the finance minister. Pakistan is in its election year, and this is the reason the finance division has taken care of the salaried class and the youth and focused on development and poorer segments of society although it did not have enough fiscal space available for these proposals.
The development budget has also taken care of infrastructure development as per the 5Es framework: a multi-pronged strategy to turn around Pakistan by putting it on high sustained growth trajectory. This is the reason the government is going to reduce taxes on the import of solar panels, batteries, etc along with providing incentives to IT and IT-enabled services to help boost IT exports.
The budget for the social safety net programme the BISP has been increased by around Rs43.5 billion while taxing the rich and wealthy of the country. The government has imposed the additional taxes of Rs223 billion by jacking up sales tax to 18 per cent on edible oil and other times, but has given a free pass to those who bring up to $100,000 in a year. Loans to farmers for agriculture and industry have been increased the limit has gone up from Rs1,800 billion to Rs2,250 billion and all sorts of taxes on seeds have been withdrawn. The subsidy on fertilizer has also been increased to help boost agriculture and agriculture-related sectors. It is also good to note that several incentives have been extended to this vital sector of the economy which is also called the backbone of the economy and this will definitely bring good results in the next financial year.
It is one of the best budgets in the given circumstances. It presents Rs950 billion development budget; the 30-35 per cent increase in government salaries and a 17.5 per cent in pension are laudable. The budget has set the revenue target of Rs9.2 trillion. The budgetary proposals need to be evaluated properly, as Pakistan is facing the threat of default in the absence of the IMF programme. There are fears that its meagre amount of foreign exchange reserves will not keep the country afloat.
Inflation is at the highest level touching around 40 per cent, and the Pakistani rupee has depreciated around 40 per cent in one year, trading around Rs300 per dollar in the open market. These exchange rate fluctuations are drastic and detrimental by all means. The global credit rating agencies are also predicting sovereign default in case the IMF does not restore the EFF programme concluding on June 30, 2023. Given the circumstances, it seems there are almost zero chances for the restoration of the IMF program. This will be 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 the IMF for being unfair with Pakistan, as according to him the country is being trapped in the game of geopolitics, disturbing the whole concept of geo-economics. Pakistan is already in talks with friendly countries to restructure its bilateral loans. Further, these loans could be re-profiled through rollovers as we have done in the case of loans from China and Saudi Arabia. But the main question is how long this practice of rollovers will continue in the absence of any long term planning to retire this debt.
Pakistan has set a target of achieving 3.5 per cent GDP growth with the average inflation of about 21 per cent in the coming fiscal year. It is quite interesting to see how this will turn out. At present, the 21 per cent interest rate by the State Bank of Pakistan has become a big hurdle in attracting investment in the country.
The outgoing fiscal year has outlined a meagre 0.29 per cent GDP growth, which is a matter of concern and depression for any financial manager of the country. As everything is topsy-turvy in Pakistan, the failing economy is the main concern as a large segment of the population is living below the poverty line. The crime rate is alarmingly high due to the rising inflation, and the rate of unemployment is steadily increasing especially because of zero investments due to high interest rate.
The main question about this budget is whether it is realistic as the budgetary proposals do not have any support of revenue and the IMF programme. The government apparently seems clueless with no concrete plans to pursue its budget targets and get the country out the current mess. The situation is further exacerbated by the governments plans of keeping the inflation rate as high as 21 per cent without outlining any plans to reduce it to help save the 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. The government wants the budget to help win elections at a time when it faces an opposition that has high popularity.
Apparently, the government has proposed various action to support its budgetary proposals including but not limited to the imposition of a super tax of about 50 per cent on extraordinary gains owing to exogenous factors. Three slabs have been added to super tax with the rate hiked to 10 per cent with rationalization applying all persons across the board earning income above Rs150 million 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 large scale manufacturing, investment in industry and exports during the year.
The finance minister believes that with this finance bill in place, the country will perform well. The election budget presents an attraction for people before elections as the government tries to win back public support. Reducing petroleum product prices before presenting the budget was another step to lower public anger. The government has successfully played a balancing act by unveiling balanced budgetary proposals in the ongoing difficult circumstances. But one should expect mini-budgets once this government is gone and a caretaker set up comes in, as apparently resources do not 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 an effective macroeconomic policy framework in the next fiscal years budget. The government has also prioritized by allocating a hefty amount for protection of the poor to protect the vulnerable segments of society.
A conceptual framework has been outlined in the budget for the financial year 2023-24 to take care of the poor under high inflation with almost no employment opportunities. It is hoped that the dream targets set for the budget come true and the concept shared in the budget for the welfare of the people becomes a reality.
Courtesy The News