Budget brings no surprises

LAHORE: Federal budget 2023-24 brought no surprises. It is a tough budget that is in line with parameters agreed with the International Monetary Fund (IMF). The targets are tough and are unlikely to be achieved. Tax revenue estimated at Rs9,200 billion is not likely to be achieved as no new taxes have been levied on industry. Any shortfall in tax revenues would have an adverse impact on provincial budgets. The provinces would get over Rs5,200 billion from the federal government that will form the basis of provincial budgets. On their own, provinces do not generate much revenues; however, Punjab and Sindh have made some substantial strides in this regard.

Exporting industries were not facilitated, particularly in terms of providing concessions on power and gas tariffs because of the IMF conditions. Inflation impact on government servants has been addressed as the minimum raise announced is 30 percent in salary and maximum is 35 percent against official inflation of 28 percent for the year 2022-23. Salary increase for grade-17 and above should not have been more that 15 percent, and even at that rate, grade 22 employees would have gotten Rs75,000 increase. Pensioners were awarded an increase of 17.5 percent that is half salary increase recommended for serving grade 1-16 employees.

In the private sector, the minimum wage has been increased to Rs32,000 only, again less than prevailing inflation. In both cases, the inflation impact has not been covered. Waiver of duties on solar equipment and panel production should have been granted through a system and scrutiny about the quality of materials being imported. Currently, there are thousands of solar power installers that operate independent of any regulator. Though the World Bank has predicted a growth of 2 percent for next fiscal against a budgeted growth target of 3.2 percent, with negative industrial growth in 2022-23 it is likely that there would be some industrial growth next year, with agriculture likely to grow at a better pace. The government might achieve its growth target for the next fiscal.

Inflation would also ease as it would be calculated next year from the current high base. The interest rates however, would remain high because the government is the largest borrower. Banks would continue to post high profits as they would be earning 2-3 percent above the policy rate of 21 percent. Most of the larger banks have a deposit base where almost 85 percent or above account holders maintain zero markup current accounts. Textile sector will see a mixed year. The apparel sector may post gains this year as the fashion brands are going for smaller orders to address sustainability concerns of Europe and the United States.

Factories in Pakistan are comparatively smaller in Pakistan than Bangladesh or Vietnam for whom executing small orders is not possible. Spinners would be in a spin as they cannot operate on high gas and power tariffs. Most of them are operating obsolete technologies that consume more power and energy. Those that updated their technology would survive because the power and gas tariff in Bangladesh is also the same as in Pakistan, but machines in Bangladesh are of a higher order.