Dr Mushtaq Khan

Founder, doctored papers

The 2021-22 budget is good for businesses, the stock market, the poor and growth. There are no new taxes and no plans to increase power tariffs. The message was clear enough: “look at where we were, and where we are now, and unlike previous governments, we did all this without driving the country into a hole.” We cannot contest this boast, so how did they do it?

We think it was the pandemic. Covid-19 allowed the government to jumpstart the economy using fiscal and monetary policies; Pakistan received debt relief from external creditors; the threat of carry trades ended with a whimper; and most importantly, the sharp increase in remittances allowed Pakistan to post a current account surplus despite surging imports, and the central bank kept the rupee strong while building its reserves. This boosted business confidence and pushed economic growth beyond all expectations.

But there are concerns. The IMF is not convinced that policymakers can deliver on taxes and the circular debt. If the government cannot deliver the numbers, a mini-budget is the obvious next step. So,…we’ve been there before.

Dr Hafiz A Pasha

Former finance minister

The budget represents a bold and ambitious attempt at providing a strong fiscal stimulus to the growth process. The target is to achieve a GDP growth rate of almost 5pc next year. The primary instrument will be an almost 50pc increase in development spending to Rs2.1tr by the federal and provincial governments combined. The implied increase in revenue is also ambitious, with a targeted increase of almost 24pc, never achieved before. This is essential to avoid a big jump in the size of the fiscal deficit, which is already likely to be high at close to 7.5pc of GDP. These targets are accompanied by major risk factors. First, the reliance is more on faster growth in indirect taxes and a high level of revenue from the petroleum levy, with as high as 33pc growth in revenues from the sales tax. This will inevitably put pressure across the board on the price level. Also, the wheat procurement price was raised by 30pc this year. The budget does not provide for a food subsidy and only for cash transfers through the BISP/Ehsaas Program. On top of this, if the target budget deficit of 6.3pc is exceeded then it will further fuel inflationary pressures.—FSA

Published in Dawn, The Business and Finance Weekly, June 14th, 2021

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