The budget will be the real test of what the government’s message is — which areas it wants to prioritise. In other words, it will expose its darkest secret — at a troubled time, who will be its preferred beneficiaries. —  Illustration by Rajaa Moini

With hands in debt and eyes on Covid relief, what should this budget focus on?

Let’s cut to the chase. Never has the budget announcement been more significant for Pakistan than it is now.

Updated 10 Jun, 2020 07:49pm

Let’s cut to the chase. Never has the budget announcement been more significant for Pakistan than it is now.

The government will be strapped for cash, more so than usual, as Covid-19 takes its toll on the country. And while revenue requirements have increased, our hands remain tangled in debt. As weeks go by, estimates of tax collection will take a hit as job losses, lower oil sales, and a general move towards controlled consumption eat away at government revenue. The government has already reached its ceiling limit of imposing petroleum levy as it scrambles to collect revenue amid the Covid-19 outbreak.

Together with what the government terms a "stabilisation and adjustment path" Pakistan has been on, the economy will see its first contraction since the 1950s, but much of its groundwork — for lack of a better word — was laid even before the outbreak. And while the lockdown does exacerbate woes for an economy crippled with debt, inflation, strangled demand, and a general sentiment towards conservatism, to say that a lockdown wasn’t needed would be irresponsible. Prime Minister Imran Khan rightly pointed out that daily wage workers would suffer, but unless a strict lockdown was enforced there was no other way to control the outbreak.

Given the difficulty in foreseeing what will happen in the coming months, one thing is certain — the budget gives the government yet another chance to convey its intentions through actions, not mere statements.

The government's request for relief to Pakistan under the G20 initiative gives it breathing room of around $1.8 billion, according to a report in the Financial Times, but payments to private creditors will continue. Asking for relief from private creditors, those sitting in the capital markets, sends a bad signal for future borrowing plans. A recent report by Reuters also says that the government plans to raise $1.5 billion through Eurobonds in the coming fiscal year, as inflows will remain muted. The World Bank has loaned Pakistan $500 million recently along with the Asian Development Bank that gave $300 million. Additionally, as discussions under the International Monetary Fund (IMF) Extended Fund Facility remain "paused", Pakistan did receive $1.4 billion under the lender’s rapid financing instrument to cope with the pandemic.

However, these measures are never going to support an economy that saw its exports — considered widely as the most decent measure to attract inflows — decrease 2.4 per cent during July-April of 2019-2020. This happened at a time when the currency was let off the hook, and was allowed to freefall into oblivion. With Covid-19, the situation is expected to get worse.

At the same time, with a choked-up health system — at 0.6 hospital beds per 1,000 people, which is lower than that of 'highly indebted poor countries' — one should expect a substantial allocation for a Covid-19 relief fund. How this fund will be utilised is what we should expect the finance minister to elaborate during the budget speech.

Subsidies, job creation

Allocations for a fiscal year always convey a government’s priority. It allocates not just money, but signals its intentions to certain segments of the economy that these are its priority areas. In the current scenario, the situation has never been simpler. The economy, on the whole, needs a stimulus. But given limited resources, it has to prioritise. Its first contraction since 1951 has come on the back of high inflation, strangled demand, and high interest rates that were triggered due to the current account deficit.

This shows that the virus only aggravated economic issues that already existed, and this is where the government needs to remain clear.

For a young population, creating jobs is more likely to earn a return for the government since they tend to spend more, consume, and pay back in taxes.

The budget will be the real test of what the government’s message is and which areas it wants to prioritise. In other words, it will expose its darkest secret — at a troubled time, who will be its preferred beneficiaries.

One such secret has been recently revealed through the sugar subsidy. In its mid-term Budget Strategy Paper 2023, the government has mentioned subsidy in the document twice — both times in the context of food price increase. Economic managers have to know that at a time of austerity, when you are controlling a ballooning budget deficit, subsidies are a precious commodity. They have to be allocated on how much benefit it will earn the country on the whole, particularly in terms of its current account deficit. Focusing subsidies on export-oriented sectors (textile, surgical goods) that can actually bring in some much needed foreign currency should be one of the goals of this budget.

Segmented fragments of benefit, spread across a handful of people, have to be a thing of the past.


Header illustration by Rajaa Moini

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The writer is former business editor of The Express Tribune, and winner of the Citi Journalistic Excellence Award 2018. He holds a BSc from LUMS, and a MBA from Cass Business School, London.


The views expressed by this writer and commenters below do not necessarily reflect the views and policies of the Dawn Media Group.

Comments (9) Closed

yogi
Jun 10, 2020 07:53pm
So much for IK's naya Pakistan
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Mohd Zeeshaan
Jun 10, 2020 08:51pm
Pakistan needs a good economic advisor.
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Irfaan Kadir
Jun 10, 2020 08:52pm
Malaysia could come out of poverty to economic wealth, why cant Pakistan.
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Gurpreet Singh
Jun 10, 2020 08:54pm
Pakistan will never recover from economic doldrums until the establishment does not interfere, corruption to be eradicated from grass root levels.
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JustSaying
Jun 10, 2020 10:24pm
Atlast the country is on the Growth Trajectory...
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TZaman
Jun 10, 2020 11:34pm
Imran Khan's mantra failed completely. So lets make a new policy.
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Anuj
Jun 11, 2020 12:09am
The inability to raise real revenue from increased tax inflow...by widening the scope plus better collection, us now the albatross around the Pakistani system s neck. Even if this and maybe a bad second year are seen through, without fixing this problem, Pakistan shall only be postponing a very big future problem. If this really is a naya natiin, and if the government realises these are extraordinary times where it can start pushing the envelope on tax collection reforms, there may be a chance.
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Vikas
Jun 11, 2020 12:52am
I think the only thing the budget can focus on is debt servicing, debt repayment, salaries to government staff and of course defense. Everything else like development must be put off till later. Maybe till after CPEC.
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Vikas
Jun 11, 2020 12:54am
But the first Chinese ship carrying fertilser for Afghanistan has docked at Gwadar and now to travel to China would mean billions of dollars to Pakistan. CPEC is on. Now within this year Pakistan would start to earn billions of dollars everyday.
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