Shahbaz Sharif (L) shakes hands with Ishaq Dar after the budget speech in the National Assembly in Islamabad on Friday. Twitter photo
Pakistan's federal government unveiled a Rs14.5 trillion (around $50.5 billion) budget on Friday, with over half set aside to service Rs7.3 trillion of debt.
Pakistan's economy has been stricken by a balance-of-payments crisis as it attempts to service crippling external debt, while months of political chaos have scared off potential foreign investment.
Inflation has rocketed, the rupee has plummeted and the country can no longer afford imports, causing a severe decline in industrial output.
The government had prepared "a responsible budget, not an election budget," Dar said.
The total spending target would be Rs14.5 trillion, Dar said, with Rs1.8 trillion going to defence. It would target debt servicing of Rs7.3 trillion.
Dar reiterated that the government hoped to get an agreement with the IMF soon, echoing comments made earlier in the day by Prime Minister Shahbaz Sharif as he addressed his cabinet.
Shahbaz's government is hoping to persuade the IMF to unlock at least some of the $2.5 billion left in a $6.5 billion programme that Pakistan entered in 2019 and which expires at the end of this month.
About Rs950 billion was earmarked for vote-winning development projects ahead of a general election later this year, while other populist measures include civil service pay rises of up to 35 per cent, and a 17.5 per cent increase for state pensions.
Prime Minister Shahbaz Sharif blamed his predecessor Imran Khan — ousted by a vote of no-confidence in April last year — for the morass. "Our preceding government has battered the economy," he said.
Shahbaz said he was optimistic for an extension later this month on an International Monetary Fund (IMF) loan facility crucial to keeping the economy afloat.
"The IMF chief has given his verbal commitment... there is no hindrance," he said.
Presenting the budget to the National Assembly, Ishaq Dar insisted targets had been prudent. "There are general elections in the country soon, but despite that the next fiscal-year budget is prepared as a responsible budget instead of an election budget," he said.
During the speech, the finance minister said that the government was imposing no new taxes for the upcoming year.
He said the next fiscal year’s budget will not be an election year budget. It is a fiscally responsible budget, he said, adding as a precursor that no independent analyst could say otherwise.
Dar said for the next year, GDP growth had been budgeted at 3.5 per cent, terming it a “modest target.” He said that this budget is “not an election budget” and is focusing on the “elements of the real economy.”
Dar said agriculture is the backbone of the economy and this budget is placing special attention on this sector. He then went on to list some of the special measures taken for the agri sector, primary among which was increasing agri loans from Rs1.8 trillion to Rs2.25 trillion.
These measures included no increase in duties on import of essential items;
no new taxes for the upcoming year; exemption of customs duties on import of seeds for sowing to promote growth in the agricultural sector; withdrawal of capping of the fixed duties and taxes on the import of old and used vehicles of Asian Makes above 1300CC; services provided by restaurants including cafes, food (including ice cream), parlours, coffee houses, coffee shops, food huts, eateries, resorts and similar cooked, prepared or ready-to-eat food service outlets etc are proposed to be taxed at 5pc if payment is made through debit or credit cards, mobile wallets or QR scanning; grant of exemption of sales tax on contraceptives and accessories; minimum wage proposed at Rs32,000; wages of government employees from Grades 1-16 and Grades 17-22 to be increased by 35pc and 30pc, respectively; increase in withholding tax rate from 1pc to 5pc on payment to non-residents through debit/credit or prepaid cards and exemption of customs duties on import of shrimps/prawns/juvenile for breeding in commercial fish farms and hatcheries; Rs1 billion allocated for health insurance of working journalists.
The government budgeted total current expenditure at Rs13,320b for FY24, which is 53pc higher than last year’s budgeted figure.
Defence expenditure is budgeted at Rs1,804b, 15.4 per cent higher than last year, making up 1.7% of GDP.
Interest payments, or debt servicing, budgeted for FY24 have risen a whopping 85pc from last year to Rs7,303b — accounting for 55pc of total current expenditure — making it the single largest expenditure of the government.
Total revenue budgeted for FY23 stands at Rs12,163b. After subtracting provincial transfer of Rs5,276b, net revenue comes out at Rs6,887bn, which is 36.9pc higher than last year.
The tax collection target for the Federal Board of Revenue (FBR) has been set at Rs9,200b, which is 23pc higher than last year’s target.
Fiscal deficit, or overall budget deficit, which is the difference between the government’s total expenditure and revenue is calculated as: Gross Revenue at Rs12,163b (minus) Transfer to Provinces Rs5,276b (plus) Provincial Surplus Rs650b (minus) Total Expenditure Rs14,460b.
Overall deficit is budgeted at Rs6,923b, which is 82pc higher than last year’s Rs3,797b. This year, fiscal deficit is 6.54pc of the GDP. Last year, the deficit was 4.9pc of the GDP.
Following last year’s actual high inflation at 28.2pc, the government set a target of 21pc for the next fiscal year.
The finance minister said the government had realised it would have to take “extremely painful steps” for economic rehabilitation, adding that doing so would cause poverty and inflation to increase.
Some analysts said the budget was unlikely to impress the IMF. "It is a plain vanilla budget with no path to structural reforms," said Shahbaz Ashraf, chief investment officer at Karachi-based investment firm FRIM Ventures.
On Thursday, the IMF had said it has been discussing the budget with Pakistan with a focus on balancing debt sustainability while creating space to increase social spending.
Mustafa Pasha, chief investment officer at Lakson Investments, said the IMF would likely ask for more measures around revenue collection.
"The budget is unlikely to improve chances of a staff level agreement (with the IMF) in June," he said.
A cross-section of Pakistani business community in the UAE and financial analysts shared their candid views with Gulf Today, adding that the budget is poor-friendly and growth focused.
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