Pakistan’s budget-making exercise has always been torn between competing priorities, but this year it has been more so than ever. Desperate for political redemption after a disastrous power trip, Prime Minister Shahbaz Sharif’s political coalition wants an electioneering budget; business and industry are keen to see the revenue hungry government introduce no new taxes; the general populace, grunting under the burden of economic hardship that has been around for years now, will not be placated without an expansionary budget; and the IMF is pushing for continued macroeconomic stabilization and belt tightening. Sharif’s economy czar Senator Ishaq Dar has purportedly delivered a draft finance bill that tries to check all these boxes - at least on paper - if only to cement his credentials as the wizard of economy he is made out to be. In other words, the government’s budget for fiscal year 2024 tries to be everybody’s budget.
However, the trade-offs between these competing priorities are substantial and likely unbridgeable. Of course, the bill is up for debate in the National Assembly and as such there is still some room for adjustments, but the broad contours of Budget 2024 are in, and it is abundantly clear that this budget has been drawn up with a mini-budget down the line in mind to put its aspirational part in touch with stone-cold reality. The populist measures incorporated in the budget run afoul of the need for the government to stay within its means. Equally, the draft bill shows unmistakable signs of a government that does not know how to put its money where its mouth is, and ready to bend its knee to the vocal minorities at the expense of the silent majority. Consider, for instance, the 25-35 per cent raise for federal salaries and pensions. How can a government whose share of revenue net of debt service is negative do this? And the same government can spare only a puny 12.5 per cent enhancement for the Benazir Income Support Programme (BISP), which caters to the poorest of the poor. On the flip side, the raise intended for federal employees and pensioners is barely above the real interest rate, so the hype around it is nothing but shameless vote canvassing. All things considered, this demonstrates the impossibility of making ends meet within the revenue the government is able to raise with the conventional approach. These are clearly desperate times that call for desperate measures, but a government focused on a general election in the second quarter of the new fiscal year is scarcely equipped to do the needful.
The GDP growth target of 3.5 per cent may be a giveaway of the government’s actual expectations of economic development over the next fiscal year, amounting to little or nothing. For a country with a population growth rate of around 3.0 per cent, 3.5 per cent GDP growth is no growth at all, which is exactly what the government hopes to achieve, even though it projects 21 per cent inflation. Under the circumstances, a lot of hypothetical largesse the government is able to dangle at the outset of the fiscal year is based on overambitious revenue targets. How it hopes to achieve the Rs9.2tr revenue target with high inflation and low growth is beyond comprehension, especially given how the authorities failed to meet their Rs7.4tr target for the outgoing fiscal. Particularly unrealistic is the non-tax revenue target, set at one-third of total revenues. There is no word as to where they hope to come with this kind of windfall, although enhancement of petroleum levy on cheaper Russian and Iranian oil is a likely suspect; it goes without saying that there’s many a slip ‘twixt the cup and the lip on that count.
Some of the budget proposals verge on the foolish. Take for instance the 0.6 per cent surcharge on bank transactions. The last time this kind of a levy was introduced, it caused massive currency outflows from the baking system, driving money into the grey economy. Then there is the proposal to levy a tax on bonuses. A prior proposal along these lines was found to be legally untenable and could not be implemented. Perhaps these idiosyncrasies are born of the inherent impossibility of managing an economy as diseased as ours. What do you do about an economy that has to fork out (Rs7.303tr) more than half of its total budget outlay in interest payments? On the other hand, it is amply clear the economy is moving deeper into the morass rather than getting out of it. Yet again we see a budget envisaging a cut in development expenditure, bringing it down to 0.9 per cent of GDP, down from the high mark of 2.1 percent of GDP in FY16. Defence expenditure, although nominally up 15 per cent compared to last fiscal, is down in real terms if we take inflation into account.
Then there is the question of selling the budget numbers to the IMF, especially as we know the government is counting on closing the outgoing IMF programme on a positive note as well as expecting to enter a new programme soon after. Inexplicably, the draft budget projects the current account deficit (CAD) climbing to $6bn. This may be a hint that the government intends to ease the curbs on imports for at least the first few months of the new fiscal with a view to creating a feel-good bubble. As usual, the import bill (projected at $58.7bn) by far outstrips the proceeds from exports (projected at $28bn), reflecting the government’s pessimism towards its own ability to kickstart the export sector.
Small wonder then that markets are already taking a dim view of the budget, with business leaders openly expressing their suspicion of the government’s intentions, and some actively on the lookout for hidden taxation measures. More than anything else, the fiscal deficit projected at 6.54 per cent is a dead giveaway that Dar and co intend to put splurge a little going into the general election due in October and expect the new government emerging from the polls to introduce a belt-tightening mini-budget to rework the numbers for a new IMF programme. It is already well known the Fund is not prepared to countenance a fiscal deficit above 4.0 per cent, in addition to a 0.5 per cent primary surplus.
In sum, the draft budget falls flat in all departments - so much so that even the populist measures envisaged are visibly cosmetic, and there is little consideration for the plight of the poor. The government’s preoccupation with the upcoming general election has deprived it of any ability or willingness to take any efficacious measures in any direction at all, much less potent measures in the right direction that would help guide the economy out of the woods. If the citizenry had any hopes of betterment from the new budget, those hopes have been conclusively dashed.