NOTWITHSTANDING some apparent resistance from key opposition parties, the Pakistan Muslim League-Nawaz government is poised to present later this week a rare sixth federal budget in its five-year constitutional term.
A major part of next year’s budgetary proposals and officially expected outcome of the macroeconomic indicators is now publicly available, the foremost being the Economic Reforms Package — with a wide-ranging revenue impact — announced by the Prime Minister last month.
It is also now common knowledge that the schedule for the announcement of federal and provincial budgets was finalised in consultation with former Pakistan People’s Party’s finance minister Naveed Qamar and Pakistan Tehreek-i-Insaf’s chief whip in the National Assembly Shireen Mazari, and the provincial governments.
This was also evident from participation by Khyber Pakhtunkhwa’s Finance Minister Muzaffar Said (despite PTI chairman Imran Khan’s announcement that the KP government would not present next year’s provincial budget) and Sindh’s Minister for Planning and Development Saeed Ghani in the meeting of the Annual Planning Coordination Committee.
During the course of these meetings, the four provinces have consented to cut their development budgets cumulatively by Rs104 billion during the current year to chip in for the centre’s Rs251bn reduction in the development programme in order to curtail the fiscal deficit by one per cent (Rs355bn) of GDP at 5.5pc instead of the original 4.1pc target.
Besides a series of major budgetary measures, like reduction in income tax rates as part of the Economic Reforms Package, another expectation for the salaried class would be up to 15pc increase in wages and pensions for public servants.
A key attraction of the budget is slated to be a package for the agriculture sector that would entail reduced tax rates on tractors and fertilisers, duty-free import of agricultural machinery, and subsidised power tariffs for tube wells.
The budget’s philosophy is based on four objectives: sustaining the growth momentum, ensuring fiscal consolidation, managing balance of payments and ensuring debt sustainability.
The government expects that the reform package, including lowered tax rates, widening tax base, real-estate reforms, local amnesty and tightening of foreign exchange regime will help increase revenues and reduce the fiscal deficit.
The upcoming budget’s philosophy is based on four objectives: sustaining the growth momentum, ensuring fiscal consolidation, managing balance of payments and ensuring debt sustainability
The defence allocations for next year are expected to go up by almost 20pc to Rs1.1 trillion when compared to current year’s budget allocation of Rs920bn. This will be partly because no inflows are expected from the United States on account of coalition support fund (CSF).
This year, too, the CSF refunds did not flow in, leading to an expenditure overrun of Rs78bn to Rs998bn instead of the budgeted Rs920bn. Another addition to the Rs1.1tr allocation will be Rs100bn for the Armed Forces Development Programme.
This will be auxiliary to Rs90bn that would flow through defence channels for Security Enhancement and Rehabilitation of Internally Displaced Persons (Rs45bn each). The defence allocations have been going up at the rate of 10pc per annum in the past decade or so.
An even bigger drain on the federal budget will be Rs1.6tr debt servicing compared to Rs1.36tr during the current year, showing a jump of 18pc.
Also missing from the budget will be any allocation for global commitment for sustainable development goals, energy and clean drinking water for all, and special development programme against Rs70bn allocation this year.
On the other hand, the provinces would get about Rs2.55tr next year compared to Rs2.38bn for the current year. The next year’s federal expenditure would be around Rs5.237tr compared to Rs4.753tr estimated for the current year.
It was against this backdrop that during a meeting of the federal cabinet last week the Prime Minister’s Adviser on Finance and Economic Affairs Dr Miftah Ismail repeated former finance minister Ishaq Dar’s assertion about the National Finance Commission award.
He stated that the current resource sharing arrangement under the decades-old NFC award had made it difficult to formulate a balanced budget that would share the benefits of higher growth rates with the public. This needs to be reviewed as early as possible, he pleaded.
Interestingly, despite a squeezed development budget of Rs800bn, the government is targeting a 6.2pc growth for the next fiscal year, anticipating key impetus originating from the China-Pakistan Economic Corridor. The next year’s fiscal deficit is projected at 5.3pc, but it needs to be kept in mind that deficit targets always remained out of reach over at least the past decade.
An amount of Rs36bn has been proposed for up to 15pc increase in salaries and pensions for the next year; a final decision would be made on the budget day. As such, an amount of Rs342bn was proposed for pensions next year compared to Rs248bn budgetary allocation for this year that has now been revised to Rs320bn.
The running expenditures of the federal government are estimated to be Rs445bn for next year compared to Rs377bn for the current year. The next target for subsidies was set at Rs179bn compared to Rs144bn allocated for the current year, which actually would touch Rs164bn according to revised estimates.
Total availability of resources through Federal Board of Revenue’s taxation was estimated at Rs4.435tr next year compared to Rs4.103tr during this year, which was missed by Rs80bn. About Rs12bn are being earmarked for holding of general elections on July 31.
The next year GDP growth rate targeted at 6.2pc is anticipated to be supported by 3.8pc growth in agriculture, 7.6pc in industry and 6.5pc increase in services sector and six per cent rate of inflation.
Total investments for next year are estimated at 17.2pc of GDP compared to 16.4pc in the current year, while national savings are estimated to increase 13.3pc next year from current year’s 12.1pc of GDP.
Exports are projected to go up to $27.3bn compared to $24.5bn of the current year while imports would increase to $56.5bn from $53.1bn this year. This would mean the trade deficit would widen to $29.2bn against $28.6bn this year.
The current account deficit, on the other hand, is projected to come down to $12.5bn (3.8pc of GDP) next year from $13.7bn (4.4pc of GDP) this year.
Published in Dawn, The Business and Finance Weekly, April 23rd, 2018