Budget 2019-20: Eminent economists give mixed reactions

ISLAMABAD: The federal budget 2019-20 reflects the PTI mind as it is development driven and is meant to more than taking care of vulnerable segments of society.

The allocation for development in the budget is at higher side which is at Rs1.8 trillion that includes the federal share of over Rs900 billion, says Dr Salman Shah, Adviser to Chief Minister of Punjab on Economic Affairs and Planning.

“Though the government is going to be under IMF programme loan, the Fund has not imposed any restriction on Pakistan. It only wants the government to achieve the primary deficit of 0.6 percent,” he said.

While talking to The News here on Wednesday, he said that placing the allocation of Rs1.8 trillion for development budget, the PTI government has given the message that it will not cut the uplift budget.

The Imran Khan government has also allocated a huge amount of Rs375 billion for social protection programme that included Rs180 billion for BISP, Rs190 billion for EHSAS programme and Rs5 billion for Youth Programme, indicating how concerned the government is about the poorest of the poor in the country. He said more importantly, the government has earmarked sizeable amounts for CPEC and water projects.

Mentioning Rs5.5 trillion revenue target, Dr Salman said though it is ambitious but it is achievable. He referred to the latest report of the World Bank, which says that Pakistan even can achieve the revenue target of Rs8 trillion if all tax exemptions are done away with. He said if no new taxes are imposed and just all the tax exemptions are withdrawn, the Rs8 trillion revenue target can be attained and the target of Rs5.5 trillion is not impossible to achieve. It requires only firm resolve that Prime Minister Imran Khan has.

Dr Shah substantiated the argument saying that Imran Khan has just stated that he will himself discuss it with FBR Chairman Shabbar Zaidi to carve out the plan to achieve the target. He said Imran Khan is determined to introduce reforms, automation and simplification in FBR for earning maximum revenues. The World Bank has already committed $400 million for reforms in FBR.

When asked about reduction of defence budget, he responded saying that during the Musharraf regime, the defence budget got frozen. However, he acknowledged that no development takes place without financial resources and they can be ensured if revenue is increased. He said that to run Pakistan economy, the government needs to plug the black hole in the economy, which is bleeding the power sector.

It is high time to contain the circular debt, which stands at Rs1.4 trillion. Dr Shah said that Power Division has worked out a plan to make the circular debt zero till December 2020. He said that the sitting government is trying from pillar to post to scale down the cost of doing business and improve the investment climate.

To a question about zero rating withdrawal from export industry, he said that this initiative will create the liquidity problem for the industry. However, the government is working on Guaranteed Refund Mechanism. He suggested to the FBR to collect the Sales Tax from textile goods trucks outside the mill and refund it when the textile products are loaded in the ship at port city of Karachi. The mechanism should be efficient enough that the industry feels no heat on the fronts of refunds of taxes.

Meanwhile, Dr Hafeez Pasha, an eminent economist of the country, while responding to the budget 2019-20 tabled in the parliament here on Wednesday told The News that according to the budget documents, the PTI government will pile up $23 billion by end of next fiscal year as it has borrowed $10 billion in the current fiscal and is set to borrow another $13 billion in next financial year. This means in two years, PTI government will add $23 billion more to Pakistan’s government debt, which will be the first time in the history of Pakistan. However, the budget document also unfolds that Pakistan has managed to get $5 billion loan rolled over from friendly countries, saying it will help finance the government to bridge the gap. The budget document also reveals that there is a huge increase up to Rs300 billion in sovereign guarantees against the debts of the public sector entities. ‘This increase is quite alarmingly.’

He, however, appreciated of allocation of Rs58 billion as special grant for KPK for administrative expenditure after merging of Fata with KPK. He also praised the government for allocating a huge amount of Rs370 billion for social protection, which is three times more than the allocation of current financial year. It is a good omen that the government has increased the allocation for BISP (Benazir Income Support Programme) to Rs180 billion and for Ehasas programme Rs189 billion.

However, Dr Pasha said that it is simply un-implementable budget because the revenue of Rs5,550 billion is an unrealistic target. He said no target will be achieved mentioned in the budget as the GDP growth has been estimated in the budget document at 2.4 percent for the next budgetary year and with this growth how the additional revenue of Rs1.5 trillion can be achieved. In the past, 40 percent growth in revenue target has never been earmarked and with the GDP growth of 2.4 percent this is simply mission impossible to materialise the target.

Achieving the unrealistic target of Rs5.5 trillion, Dr Pasha said, revenue will expose to every house to Rs65,000 per annum but in lower middle class having salary in the range of Rs30,000 to Rs50,000 per month will lose two salaries in one year to the taxation measures.

Dr Pasha questioned the ability of the new economic team for estimating such a huge budget deficit at 7.2 percent (Rs3.1515 trillion) in net budgetary year, saying that when the defence budget has been ceased at Rs1.152 trillion in the presence of huge target of Rs5.5 trillion is simply beyond comprehension. Yes, out of Rs5.5 trillion 60 percent will be consumed on debt servicing that has been estimated in the budget at Rs1.152 trillion. He said that when there is a fiscal deficit at 7.2 percent, then how can we call the next budgetary year stabilisation financial year.

When his attention was drawn to the estimated inflation at 11-13 percent in next budgetary year, Dr Pasha said that it will be more than that as after every review by IMF on quarterly basis, the government will not be able to achieve any target, which is why the government will come up with more mini budgets along with more taxation measures. ‘This will force the government to increase the sales tax from 17 percent to 18, 19 and may be up to 20 percent in the mini budgets to follow.’ He said the government in case of slippages may also go for increasing the import duty on pulses, edibles oil and tea, which will be causing more inflation.

Dr Pasha also criticised the government on withdrawing the zero rating from export industry of textile, carpet, surgical, sports and leather and imposing 17 percent sales tax, saying it will be detrimental to the exports of the country. He said that this will create liquidity problems for the industry too.

Meanwhile, the budget in brief document for 2019-20 has fully exposed the integrity of the highest economic policy making body — the National Economic Council (NEC) which is chaired by prime minister and attended by four chief ministers by unfolding that the budget is factually prepared by IMF not by the government.

The NEC – the supreme economic policy decision making forum which met with prime minister on June 10 and approved the next budgetary year’s growth at 4 percent and inflation at 8.5 percent, but the page 48 of the budget in brief document negates the numbers approved by NEC and unfolds that the next year growth will be at 2.4 percent and inflation will be at 11-13 percent.

Dr Ashfaque Hasan Khan, Principal and Dean, School of Social Sciences & Humanities, at NUST while talking to The News said that this budget has been prepared by IMF which was presented by Ministry of Finance in the Parliament. He said that IMF has rejected the growth number of 4 percent and inflation at 8.5 for next fiscal year approved by NEC saying to hell with NEC working and its approval, rather the Fund includes the numbers worked out by it which are 2.4 percent GDP growth and inflation at 11-13 percent for next financial year 2019-20.

This clearly means the budget has been prepared by IMF not by the Ministry of Finance and my statement is substantiated by the budget document namely budget in brief whose page 48 clearly says what the IMF wanted. In that page with headline of Macro Economic Indicators for 2020-21, the growth target has been set at just 3 percent, which is still less than the growth rate of current fiscal which stands at 3. 3 percent. ‘This means growth will continue to go down till 2020-21.’

Dr Khan also said that according to the budget documents, the budget 2019-20 that has been presented in the parliament will not contain the budget deficit, rather it will increase the fiscal deficit. Though the budget deficit has been set at 7.2 percent but factually the next budgetary year will start with 8.2 percent of budget deficit. He argued that the target of Rs5.5 trillion will not be achieved and slippages in revenue will start in every quarter forcing the government to come up with mini budget with more taxation measures, otherwise the budget deficit will sell more.

Dr Khan says that at GDP growth of 2.4 percent, the revenue number of Rs5.5 trillion will not be achieved and when it is not materialised, then the provinces will be provided the share from actual revenue to be collected by FBR. However, Balochistan will be provided the share as per Rs5.5 trillion but the other three federating units will be provided financial resources from divisible pool on the basis of actual revenue to be mopped up by FBR. He said in the budget document, it is mentioned that provinces will provide surplus of 1 percent of GDP, which is equal to Rs423 billion, but his contention is that when the provinces get less amount as the FBR will not be able to collect Rs5.5 trillion, then how provinces will ensure the budget surplus of Rs423 billion. This means that the next financial year will start with 8.2 percent budget deficit and because of expected slippages in revenue, the budget deficit will go up to 9 percent.

He said that this budget is not meant to contain the budget deficit, rather it is meant to accumulating the debt caused by devaluation and increase in discount rate. Larger the gap between expenditures and revenues, the more the government will borrow. This is the exact Egyptian model being applied by the IMF in Pakistan. He said in Foreign Policy Magazine, it is clearly written that Egypt is not growing rather it is collapsing because of burden of debts after IMF programme. He said that the IMF has nothing to do with fiscal deficit as it requires only bringing down the primary deficit to 0.6 percent in next budgetary year. This is why defence budget has been reduced from 3 percent of GDP to 2.6 percentage of GDP and that’s what IMF executive board member countries wanted which was why he opposed at the very outset to joining IMF.