In case of no waiver from IMF

ISLAMABAD: The government is all set to present budget 2019-2020 on June 11 based on unrealistic revenue target of Rs5.5 trillion, which will be prone to slippages from performance criteria on every quarter review by the IMF.

In case of no waiver from the IMF, the government will come up with a mini-budget after every review to avoid default on the revenue target with more measures on taxation making the PTI government most unpopular.

If the government does not come up with a mini-budget to avoid the masses wrath, then the IMF programme loan of $6 billion will stand suspended multiplying the economic miseries of the country.

However, the IMF that seems highly influenced by the Trump administration will extend the waiver only when Pakistan will totally show readiness to cooperate on non-economic issues such as cooperation on issues related to Afghanistan and terrorism up to the satisfaction of the US.

In case of no waiver, there’s going to be a danger for the country of being declared a defaulter. So the government is left with no option but to achieve the revenue target.

In order to avoid the slippages from the target and waiver from the IMF as well, Pakistan will have to increase the GST from 17 percent to 20 percent in the mini-budget if it fails to achieve the target after the first quarter.

One percent GST means the revenue of Rs80 billion and three percent means accumulation of Rs240 billion more in revenue.

According to eminent economist Dr Hafeez Pasha, the government also needs to have a contingency plan if it defaults on achieving targets in every quarter.

He suggested that under this scenario the government had to come up with a contingency plan for increase in GST up to 20 percent and increase import duty from 2 to 5 percent.

“This will immediately give the required relief to the government on the revenue side to keep the default away,” he said.

However, Dr Pasha said during the PTI government rule so far, about 10,00,000 people had lost jobs and in the next budgetary year 10,00,000 more will get unemployed while 45,00,000 people will go blew the poverty line, as the economy of $313 billion has shrunk to $280 billion which will further reduce to $260 billion in the next budgetary year.

Mentioning the revenue target, he suggested that the government to do away with all tax exemptions available to the affluent class.

He mentioned that two years back the income tax limit was up to those having Rs4,00,000 annual income, but later on the limit was increased to those having Rs12,00,000 income. Dr Pasha asked the government to impose income tax by reducing the annual income limit to 6,50,000 from Rs12,00,000.

He also opposed the government’s decision to end zero rating for the export industry, including the textile industry, saying export industry was the lifeline of Pakistan’s economy and through export industry Pakistan could only earn US dollars.

Dr. Pasha also suggested that the government should avoid imposing any tax on investment and export industry, as these were the areas which could bail Pakistan out of the economic morass.

On the expenditure side, according to the senior official at the finance ministry, the defence budget, including pensions of army personnel, is estimated to end at Rs1250 billion showing more expenditure of Rs150 billion in the ongoing financial year. However, for next budgetary year, the statement from the COAS came up saying that the armed forces will not seek increase in the defence budget keeping in view the no fiscal space available with the government, is a plausible gesture.

In the first nine months of the current fiscal, the defence budget increased by 24 percent and if the pensions are also included, then expenditure on defence got increased by 30 percent. However, by June 30, 2019, the expenditure on defence is estimated to culminate at Rs1250 billion from the budgeted amount of Rs1100 billion showing an increase of Rs150 billion.

The increase in the defence budget in the current financial year is because of small scale war with India following Pulwama incident. Still Pakistan is at war with India and its forces are on high alert on the western border with Afghanistan. In addition, the forces are busy maintaining peace in Fata areas fighting militants.

Similarly, the expenditure on debt servicing has also jacked up by 24 percent in the first 9 current fiscal months of ongoing financial year.

In the next budgetary year, according to Dr Pasha, the expenditure on debt servicing is going be Rs2.8 trillion. In 2017-18, the amount fixed for debt servicing stood at Rs1.5 trillion which scaled up in 2018-19 to over Rs2 trillion.

Dr Pasha also suggested 10 percent increase in the salaries of army officials other than the commissioned officers and in government employees of 1-16 to help them beat the inflation.