Wednesday November 29, 2023

Economists call the budget ‘populist’

June 10, 2023

LAHORE: Economists see the federal budget as a populist one in which the government attempted to please everyone besides fixing ambitious revenue targets despite failing to achieve the targets set for the ongoing fiscal year. The government also did not announce any steps for stabilising the exchange rate to end the stark difference between the open, grey, and interbank market rates. Analysts also pointed out that the incentives announced for remittance cards would not attract overseas Pakistanis because of the difference between the regular and non-regular channels. Dr Naveed Hamid, senior economist and Director CREB at the Lahore School of Economics (LSE) said that the balance of payment, and foreign exchange reserves were two key challenges faced by Pakistan’s economy, which remained unaddressed in the budget.

“The budgetary steps will create inflationary and wage price spiral,” he said, adding that the government has not only increased the salaries and pensions, but also the minimum wages, which would force the private sector to increase salaries accordingly.

He also raised an alarm over the ambitious tax revenue target in the wake of lowered duties and taxes. Dr Hamid pointed out that without reaching a staff level agreement with the International Monetary Fund (IMF), nobody would lend to Pakistan. And amidst this scenario “from where will the dollars come for import payments?” Commenting on the Public Sector Development Programme (PSDP) allocations, he asked how the government convinced the IMF on that when the Fund was asking it to end the budget deficit. Instead, the government has increased the current expenditures due to salary and pension increase, higher BISP allocation, and Rs1,074 billion subsidy, while it has

announced no major revenue increase steps.

The senior economist said that even if there was a nominal increase in GDP, the tax to GDP ratio would further decline. “Similarly, inflation target is fixed at 21 percent, while salary increase is 30 percent, which means inflation will also touch this level,” he said, while pointing out that by doing this, the government itself has given leeway to the private sector to increase prices from 21 to 30 percent.Speaking about currency devaluation, the economist said that it was a real challenge, which was also admitted by the government; however, no explanations, reasons or plans were shared about controlling it. Economist Dr Nadia Saleem said that the budget was given keeping only a month’s target in mind, as the term of the current government would end in August 2023. Therefore, the government “was not worried about the targets set for the budget”.

Historically, the budget target was never achieved in Pakistan, and since nobody raises questions on that, the government fixed an unachievable target. Calling the budget’s fiscal policy expansionary, she reminded that the IMF had asked for stabilising the economy. The economist also called the Rs1,100 billion PSDP spending a dream, with constituencies more focused on scholarships, laptops, and tax incentives on construction of houses. The government tried to please everyone via this budget, and it does not feel like the country is on the verge of a default.