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Ishaq Dar eyes 7pc growth by tenure end

Updated June 05, 2015

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Finance Minister Ishaq Dar unveiled the budget for fiscal year 2015-2016.
Finance Minister Ishaq Dar unveiled the budget for fiscal year 2015-2016.

ISLAMABAD: The federal cabinet on Friday approved the budget for the fiscal year 2015-16 (FY2015-16), with a total outlay of Rs4.313 trillion, which is 9.1 per cent higher than the revised 2014-15 outlay of Rs3.9tr.

Finance Minister Ishaq Dar while presenting the budget for fiscal year 2015-16 on the floor of the National Assembly said a growth rate target of 5.5pc had been set for the upcoming year, which he said is budgeted to reach 7pc by the end of PML-N government's tenure in 2017-18

Before announcing the budget, the minister briefed the cabinet about the salient features of the budget and said measures have been proposed which may enhance exports, industrial growth, and employment.

Meanwhile opposition in the National Assembly decided not to create any uproar during the budget speech.

"We will listen to the budget speech and will not create any problem," Khursheed Shah told reporters in Parliament.

Budget 2015: Between push and pull

5.5% targeted growth for 2015-16

This year the government is promising to continue walking down the path of stabilisation while moving towards stimulating growth in the economy.

Dar is also promising to hike the growth rate to 5.5 per cent, more than a percentage point increase over the current financial year’s accomplishment.

Prime Minister Nawaz Sharif last week had cautioned his economic team against setting unrealistic targets for the next financial year, 2015-16 when he chaired a budget strategy meeting for the upcoming financial year.

A day earlier, Dar presented the Pakistan Economic Survey (PES) which charts the country's economic progress each year. The story told by the survey was also a humbling one for the minister who prides himself on his business credentials. All targets – from growth to revenues – were missed.

Also read: Pakistan Economic Survey: Two years of growth and several missed targets.

Defence expenditure for 2015-16 to rise 11pc

Dar said Rs781bn have been allocated for expenditure on defence, which is 11pc higher than last year's allocation, with Rs39.415bn budgeted expenditure on civil armed forces for the next fiscal year.

A military official on condition of anonymity said Pakistan’s defence budget had declined as a percentage of total outlay. In 2003, the national budget was Rs828bn, with defence budget of Rs175bn constituting a significant 21% of total, he said.

But in 2014-15, the national budget increased to Rs4,302bn, while defence budget totaled Rs700.148bn, translating into16.2% of total budget.

He said in the latest national budget (2015-16), defence budget occupies third spot at 16.6% of total expenditure, after debt services (31%) and general public services (28%).

He said a comparison of various countries with regards to defence spending per soldier per annum depicts that Pakistan spends $8,077 under the head, whereas India’s expenditure is $17,554.

Main elements of budget strategy

The main elements of the budget strategy are as follows:

  • Reduction of fiscal deficit: Dar said the government will continue to consolidate gains it made in reducing fiscal deficit. In 2015-16 he is targeting fiscal deficit at 4.3% of GDP compared to 5% in 2014-15.

  • Raising Tax Revenues: The minister said that the proposed reduction
    in deficit will be achieved through a combination of better tax
    collection and tight expenditure controls.

  • Continued Focus on Energy: Energy is a key government priority, which Dar said can be judged by the fact that the prime minister is
    devoting considerable time to oversee developments in the sector. A
    Cabinet Committee on Energy has been constituted which is headed by
    the Prime Minister himself.

  • Keeping in view the current gap in demand-supply of power in the face of GDP target, the government plans to bring 7,000 MW on stream
    besides setting up 3,600 MW LNG-based projects. By December 2016 the government aims to bring 10,600 MW in the system. Beyond December
    2017, other projects such as Dasu, Diamer Bhashah, Karachi Civil
    Nuclear Energy and many other projects will also be completed.

  • Exports Promotion: The government announced additional measures to
    incentivise exports and taking other measures to ease the cost of
    doing business and improving the overall regulatory regime to
    facilitate exporters.

  • Investment to GDP ratio: The investment-to-GDP ratio, which was registered at 12.4% during 2012-2013, improved to 13.4% during 2013-14 and is provisionally estimated at 13.5% for the current fiscal year. The combined effect of increased public sector investments has also played a role in reversing the declining trend. Government projected this ratio to rise to 16.5% during 2015-16.

  • Public debt management: Debt management has received special attention in the government's overall efforts for fiscal management. The fiscal consolidation the government has achieved has paved the way for a reduction in public debt, which fell from 63.9pc in 2012-13 to a now projected level of 62.9pc at the close of current fiscal year. In the next three years, Debt-to-GDP ratio will be brought down to less than 60pc in accordance with the provisions of the Fiscal Responsibility and Debt Limitation (FRDL) Act, 2005.

Budgeted sector growth 2015-16

In order to achieve target growth of 5.5pc, sector contributions in the upcoming fiscal year have been projected at as follows: agriculture 3.9pc, manufacturing sector growth has been budgeted at 6.1pc, and services sector growth at 5.7pc.

Dar said the overall growth rate has been budgeted at 7pc by 2017-18.

Growth rate target missed for 2014-15

Ishaq Dar laid out reasons for missing the growth target in 2014-15 — which include floods in September 2014 and political protests from August to December 2014.

The minister said fiscal deficit target of 5pc for the year 2014-15 will be met by June 30, 2015.

Highlighting the government's achievement in significantly bringing down inflation, Dar also brought to notice the historically low interest rate in recent months.

Ishaq Dar speaking on the assembly floor. ─ DawnNews screengrab
Ishaq Dar speaking on the assembly floor. ─ DawnNews screengrab

Exports fall in 2014-15

Dar said in the first 10 months of the ongoing fiscal year, exports fell 3.2pc from $20.89bn despite export volume being higher.

Special security funds for Chinese workers

According to a ‘Budget in Brief’ document available with DawnNews, Rs3.5bn has been allocated for special security forces to protect Chinese engineers, project directors, experts and workers employed on various Chinese funded projects across Pakistan for 2015-16.

KSE rises

The Karachi Stock Exchange rose 70pc to 34,000 level from June 2013, said Dar.

Fiscal deficit target 2015-16

For the upcoming year, the finance minister says fiscal deficit target has been set at 4.3%, significantly down from last year's budgeted 5%.

Dar said the improvement in fiscal deficit over the year is the result of improved tax collection that resulted in higher revenue in addition to disciplined expenditure. He said tax collection increased 3pc in the past 11 months.

BISP

Dar said funds allocated to the Benazir Income Support Programme have increased to Rs102bn for the upcoming year, and that five million families will be covered under the BISP.

Tax-to-GDP

The finance minister said tax collection target as a percentage of GDP to be increased to 13.5pc by the end of fiscal year 2015-16.

Foreign exchange reserves

Dar said foreign exchange reserves had surged to $17bn which will further grow to $19bn during fiscal year 2015-16.

Scholarships for rural students

The government has allocated Rs125m for scholarships to rural students for 2015-16.

PSDP allocation 2015-16

The government has allocated Rs700bn for annual federal development programmes and Rs814bn for provinces, which translates into a total PSDP outlay of Rs1,514bn.

Dar said Rs3bn has been allocated to the development of an international airport in Gwadar.

The government has allocated Rs100bn to Special Development Programme funds in order to enhance the existing security apparatus, rehabilitate affected areas and resettle temporarily displaced persons.

WAPDA

Dar said Rs112.28bn has been allocated to the Water and Power Development Authority for fiscal year 2015-16.

Railways budget 2015-16

A total of Rs78bn has been budgeted for Pakistan Railways, of which Rs41bn has been allocated to development programmes, while Rs37bn has been set aside for employees.

Electricity and power projects

For 2015-16, Rs141.42bn has been allocated for electricity and power projects, announced Ishaq Dar.

Budget for CPEC routes

Dar announced Rs10bn for Islamabad and the DI Khan route of the China-Pak Economic Corridor (CPEC), and Rs19.5bn for the Raikot-Islamabad stretch of the CPEC.

Loans for solar tubewells

Dar said loans will be given out for solar-powered tubewells on low markups, which will significantly reduce costs for farmers who have to run tubewells on diesel-powered generators.

Funds for HEC 2015-16

The finance minister announced that Rs20.5bn has been allocated to the completion of 143 Higher Education Commission projects targeting the development of Pakistani universities.

In addition, Rs51bn was allocated to the HEC, bringing combined allocation to Rs71.5bn

Sales tax and federal excise duty

Increase in tax on cigarettes

Increase in federal excise duty (FED) on cigarettes has been proposed to 63pc from 58pc. In order to make the informal sector pay due taxes on cigarettes, levying of an adjustable FED proposed was proposed in order to filter rods at Rs0.75 per filter rod.

Tax on imported mobile phones upped

An increase in sales tax applicable on various categories of imported mobile phones was proposed, with Rs150, Rs250 and Rs500 increasing to Rs300, Rs500 and Rs1,000, respectively. Regulatory duty imposed on the import of mobile phones will be withdrawn once new rates are implemented.

Support for widows of men killed in suicide attacks

The government has decided that loans ─ including a markup of upto Rs1m as on June 30, 2015 which were obtained by men killed in suicide attacks (in their own name) ─ will be borne by the government.

This is applicable only for widows who have not remarried after the death of their husbands.

Minimum wage increased

Dar announced that minimum wage has been increased for Rs12,000 per month to Rs13,000.

Tax measures for 2015-16

Gross revenue receipts of the federal government for fiscal year 2015-16 are estimated to be approximately Rs4.313tr, of which provincial governments' share of funds is to be Rs1.849tr, while the federal government is expected to receive Rs2.464tr of revenue.

Dar emphasised the need for improving tax collection systems in order to increase revenue.

Discriminatory tax exemptions in the form of special regulatory orders (SROs) were slashed by Rs105bn or 1/3rd, “despite presence of strong and influential pressure groups,” said the finance minister.

However, a reduction in taxes from 5pc to 2pc was proposed for small salaried taxpayers with taxable income of Rs400,000-500,000.

The rate of capital gains tax proposed for fiscal year 2015-16 on 1- and 2-year securities was raised to 15pc and 12.5pc from 12.5pc and 10pc respectively in the previous fiscal year.

Education budget 2015-16

The government has allocated an overall amount of Rs97.8bn on 'education affairs and services' for fiscal year 2015-16— a 13.22% increase over budgeted expenditure in 2014-15.

However, last year’s (2014-15) budgeted expenditure was revised up from Rs86.4bn to Rs94bn, which means that in the latest budget the increase in funds under the ‘education affairs and services’ is in effect only about Rs3.8bn.

Ishaq Dar, in his budget speech, said education expenditure as a percentage of GDP is currently 1.67pc, which the government wants to improve to 4pc by the end of its tenure (2017-18).