The post-budget press conference was led by Advisor to the Prime Minister on Finance Dr Hafeez Sheikh who, as has become the norm, was flanked by Hammad Azhar, Minister of State for Revenue, Umer Ayub, Minister of Energy, Khusro Bakhtiar, Minister for Planning, Development and Reforms and Syed Shabbar Zaidi, the Chairman of Federal Board of Revenue. Dr Sheikh-led team’s narrative was the same as during previous press conferences, inclusive of the one the day before the budget at the launch of the Economic Survey: the advisor reiterated the need to incur loans for next year to pay off loans procured by previous administrations as there was an imminent risk of default with its associated untenable cost. Umer Ayub lambasted the previous administration for the circular debt and proclaimed a marked rise in receipts during his tenure, by 81 billion rupees, due to his Ministry’s successful efforts to curtail theft. And Shabbar Zaidi defended his taxation measures pledging the realisation of the 1.45 trillion rupee additional revenue for the next fiscal year.
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There is no doubt that the previous administration’s heavy reliance on loans constrains the government from allocating funds for development purposes and accounts for a steady rise in budgeted allocations for debt servicing (foreign and the much larger component of domestic debt): in 2017-18 revised estimates indicate that debt servicing accounted for 35.5 percent of total current expenditure that declined slightly to 35 percent in the current year’s revised estimates and is budgeted to rise to 39.6 percent of total current expenditure next fiscal year. Part of this raise is no doubt due to previous loans incurred as well as maturing sukuk/Eurobonds; however what is relevant to note is that the rise in the discount rate as well as the rupee erosion due to acceptance of a market-based exchange rate post-12 May – both ‘prior’ conditions of the staff-level agreement reached with the International Monetary Fund – accounts for the over 4.5 percent rise in allocations for debt servicing in one year.
Contrary to what was being reported and approved in principle by the federal cabinet, no health tax was imposed on tobacco. And as per the budget documents sales tax, a regressive tax whose incidence on the poor is greater than on the rich, would account for a revenue increase of 41.4 percent. Other revenue sources, including the 36 percent rise in State Bank of Pakistan profits – from 147 billion rupees this year to 406 billion rupees next year – is simply inexplicable given that the government can no longer borrow from the SBP as per the IMF conditionalities.
The budget for fiscal year 2019-20 is indeed a work in progress, not only because, as is the usual practice, one would have to wait and see whether the claims and pledges made in the budget and during the post-budget press conference are actually realised during the year (claims and pledges that previous administrations routinely violated indicated by a proliferation of mini-budgets) but what made 12 June 2019 truly unique in the history of this country’s post-budget briefing is that a three-page booklet titled Press Brief With New Budgetary Measures was distributed to the media. As it was issued the day after the budget was announced and given that there was no debate on the contents of the budget in the National Assembly its publication reflects an attempt to: (i) bridge the yawning gap in the data provided in the budget documents and the budget speech, example being the 217 billion rupees in electricity subsidies claimed in the booklet though the budget documents stipulate total subsidy of 271 billion rupees with Wapda/Pepco and K-Electric budgeted to receive 250.5 billion rupees and inter-disco tariff differential accounting for only 187 billion rupees. So is there an additionality to the subsidy and if so has it been adjusted in total expenditure; and how has the 40 billion rupee export package, the 14 billion rupee for knowledge economy and the 7.5 billion for the billion tree ‘tsunami’ in the booklet been adjusted in the budget documents; (ii) provide critical data that was simply not contained in the documents and/or in the budget speech; example includes a whopping 193 billion rupees for the Ehsaas programme; and (iii) data that simply cannot be reconciled, for example, a medium-term inflation in the range of 5 to 7 percent with medium-term not defined has been reported in the booklet while budget documents project inflation at 11 to 13 percent next year, 8.3 percent in 2020-21 and 6 percent in 2021-22 giving an average of 4.7 (if 11 percent is used for next year) rather than the booklet’s claim of 5 to 7 percent.
A figure that the booklet simply does not bother to deal with is the growth rate and the need for its rationalization cannot be overstated as all major macroeconomic indicators are seen in relation to it, ranging from the likely increase in tax and non-tax revenue to the rate of inflation. The Annual Plan Coordination Committee (APCC) had projected a growth rate of 4 percent confirmed by Khusro Bakhtiar during the press conference; however the budget documents give a GDP growth rate of 2.4 percent.
To conclude, the budget speech, the documents and the release of the booklet reflect a complete disregard for details that are critical in a budget and especially a budget that is going to be reviewed by the IMF staff as a prior condition to proposing a 6 billion dollar bailout package for 39 months to its Board of Directors. So far, the IMF board meeting scheduled for the end of June does not mention that the programme to Pakistan is under consideration. However, it is a foregone conclusion that the Ministry of Finance would have to clean up the documents considerably before submitting them to the Fund for review.
(This news/article originally appeared in Business Recorder on June 14th, 2019)