ISLAMABAD: The ‘woo-the-voter’ budget for the fiscal year 2021-22 reflects government’s frustration with the International Monetary Fund-mandated harsh economic policies and its desperation to give people something to ‘feel good about the economy’ in last two years of its term before the next general elections.
The government changing gears to growth was first indicated when Prime Minister Imran Khan replaced Dr Hafeez Shaikh with Shaukat Tarin as his finance team leader just weeks after the former had renegotiated the revival of the suspended $6bn IMF programme. The second indication came when Mr Tarin told the IMF that the government was not prepared to hike taxes or electricity prices as agreed by his predecessor for the revival of the Fund programme.
For the PTI government, luckily, the Covid-19 pandemic, which devastated many economies during the last one and a half years, didn’t harm Pakistan much. Even though the economy contracted by nearly 0.5pc during last year, it recovered rather quickly from the impact of the pandemic and is poised to post a decent GDP growth of 3.9pc this fiscal, providing a momentum for future growth. The unprecedented growth of around 25pc in remittances sent by Pakistanis working abroad, the flow of cheap multilateral dollars to support the country fight the pandemic and the drop in imports owing to the contracting domestic demand have also provided the government enough room to tell the IMF to back off, at least for now.
More importantly, the government feels that America’s planned pullout from the neighbouring Afghanistan has enhanced its leverage on Washington not only to end the one of its longest wars but also in case Pakistan agrees to provide air and land corridor to the US to launch urgent, speedy strikes there if and when required. While it is not clear as to what kind of concessions Pakistan can get in return, officials appear confident that the country’s enhanced leverage would at least get the required relaxation from the IMF and probably more funding to support government’s growth agenda.
Coming back to the measures announced in the budget to boost growth, Mr Tarin has announced unprecedented tax and other incentives for the businesses and the stock market. At the same time, he has promised to put cash in the pockets of the poor-low-middle-income people through enhanced cash transfers and interest-free loans. “The new budget is indeed a pro-growth document that will create positive sentiments in the economy. But risks remain,” says an analyst working for a financial institution.
“The biggest challenge for the government in the implementation of its budget comes from the revenue side. How will it attain its tax revenue target? How will it fund its spending if the targeted revenues are not collected? How does it plan to document the economy to expand the tax base? Is it really a priority for the government at all? What plan does it have to restructure loss-making state-owned enterprises? These are some of the questions that the budget does not answer,” he contends.
Samir Ahmed, the chief executive officer (CEO) of Knightsbridge Capital Group, argues that the budget 2021-22 has nothing earth-shattering in it. “And that is how it should be. The economy already has a fair amount of momentum right now. This is good considering we’re coming off a two-year stabilisation programme and one year of the Covid-19 slowdown globally.”
According to him, with the country and rest of the world slowly returning to normal it is likely that this momentum will be intensified and decent GDP growth seen in the next year and the year after. “Right now the government would be best advised to not do any harm and keep from taking major steps to stimulate the economy,” he says, “though some good small tax measures like reduction or removal of withholding taxes and turnover taxes are needed. These are all good measures that will generate more economic activity and create ease of doing business rather than anything transformational.”
Published in Dawn, June 12th, 2021