ISLAMABAD: IT began with soaring rhetoric and ended on a prayer. The finance minister began his budget speech on time, and opened it by lavishing praise upon himself. “The economic performance we have rendered in two years is unparalleled in the history of democratic governments,” he said, before going on to present his government’s narrative at the midpoint of its rule.
Read: Midway budget.
He claimed he saved the country from default in his first budget. In the second, he stabilised the macroeconomic framework. Now, in the third budget his government presented, he says he is poised to apply the accelerator and move towards spurring growth.
The atmosphere in parliament was calm. Nobody stirred and the majority of the opposition benches were empty. Everybody followed the budget speech dutifully, reading its text as the finance minister spoke. No political fireworks were expected this time, like the thundering protests that marred the PPP government’s last budget in 2012 or the last budget of the Musharraf regime in 2007, which came in the immediate aftermath of the May 12 carnage in Karachi.
In a long and tightly-woven speech, Dar ran down a list of schemes, incentives and relief measures that will combine with a National Development Program of Rs1.5 trillion to lift growth to 5.5pc. This means a rise in the growth rate of 1.2pc, which is huge considering the government has struggled to produce a 0.24pc rise in the current fiscal year.
The development plan envisages a federal PSDP of Rs700bn, and provincial development plans totaling Rs813bn.
The budget has a total resource outlay of Rs4.584tr, of which Rs1.849tr are to be transferred to the provinces under the NFC award, and a deficit of almost Rs1.328tr. The deficit came in just above 5pc of GDP this year, and is targeted to be reduced to 4.3pc next year. The government has struggled meeting these benchmarks, which are set largely in agreement with the IMF.
New tax measures add up to Rs253bn, while reduction in subsidies is to the tune of Rs105bn, which cumulatively are to help achieve the deficit target.
Prime minister’s youth schemes took up a chunk of the speech, with measures such as internship programs, skill development, and interest-free loans for young men and women from households with a poverty score of 40 or below.
The announcement was long, but the allocation totaled only Rs2bn.
Some emphasis on utilisation of solar panels found its way into the speech, with incentives such as interest-free loans for farmers to procure solar-powered tubewells and a renewal of the exemption of import of solar panels from sales tax and customs duties announced last year. This measure is likely to cause an outcry amongst local manufacturers of solar panels.
Halal meat producers are exempted from income tax for four years from date of set up; so are agriculture delivery chains.
Poultry and fresh milk have been exempted from withholding taxes and sales tax on agricultural machinery has also been reduced from 17pc to 7pc.
Another large part of the speech centred on incentives specifically for Khyber Pakhtunkhwa, including exemptions from withholding taxes and allowance to settle trade in perishables with Afghanistan in rupees rather than dollars. The lengthy portion of the speech on KP incentives suggests a political motive because the province is ruled by the PTI, which has emerged as the strongest opponent to the ruling party.
Relief measures centred largely around government salaries and perks, which have been hiked by 7.5pc, as well as miscellaneous measures incorporating ad hoc allowances into regular pay, and a hike of 25pc in medical allowances.
Dams were the only water sector project touched upon in the speech.
Some allowances have been made for surviving relatives of those killed in suicide bombings. No mention was made of those killed in terror attacks not involving suicide attackers.
Much of the promised hike in growth is to come from a hike in development spending as well as China Pakistan Economic Corridor (CPEC) projects.
“The public investments in infrastructure, particularly in water, power, highways and railways, will have secondary effects both on growth and employment as new opportunities will emerge and cost of doing business will decline,” said the minister.
A textile policy was also mentioned, with total incentive packages of Rs64.15bn. Export refinance rate has been reduced to 4.5pc and Long Term Finance Facility rates reduced to 6pc.
Powers of the FBR to issue Statutory Regulatory Orders (SROs) — the main instrument by which powerful industrial and trading groups acquire special exemptions and other privileges for themselves— have been withdrawn. From now on, all exemptions will be granted after approval of parliament.
The budget is a tightly-woven document and the grand narrative the government has built for itself has a touch of elegance to it. But the devil is in the details. Thus far, there is scepticism on whether the growth target set can be met with these measures.