A budget full of loopholes

The PTI-led federal government unveiled its second budget for the fiscal year 2020-21 amid an economic slowdown and challenges triggered by the ongoing COVID-19 pandemic.

The deadly pandemic has seriously affected the developing economies like Pakistan, and the pandemic has not only affected the health sector but also has social and economic implications. Economic activity in the country slowed down due to lockdown imposed by the government to contain the coronavirus outbreak, and the whole activity also had a negative impact on the GDP rate and investment.

In the presented budget, no new income tax has been imposed as the government wants to enhance the tax net to make more people pay taxes rather than levying more taxes on the taxpayers.

The budget cuts down subsidies by 48 percent, hikes petroleum levy by almost 73 percent, freezes salaries and pensions, and yet fails to arrest the overall fiscal deficit during 2020-21, projected almost unchanged at 7 percent of GDP (7.2pc in budget 2019-20).  

Most of the expenditure items are estimated to go down next year, except for debt servicing and defense expenditure, while about Rs 70 billion will be specifically spent on COVID-19-related schemes to support the living conditions of the vulnerable.

Regarding CPEC, due to the influence of the West, the government has placed CPEC in cold storage. Pakistan’s economy is mainly relying on foreign loans, so the economic managers are trying to appease the IMF and other international lenders by not mentioning the CPEC.

The budget 2020-21 is a traditional budget, which has no focus on changing economic priorities. Despite the economic crisis, the government has not reduced its non-development budget and funds for running government departments. The government has shifted the blame on COVID-19 for all ills of the economy, but before the pandemic, the economy was already on the ventilator.

The economy is being run on foreign as well as domestic loans and no measure has been provided to reduce the burden of loans. The truth about the debt is that it has to be repaid someday. Pakistan doesn’t understand that. It keeps borrowing resources to feed its highly non-productive and negative externality posing the defense sector and incompetent bureaucracy but not to accumulate productive human and physical capital.

CPEC too was meant to feed these sectors. Pakistan’s overall debt burden is highly unsustainable. Its public debt to GDP ratio stands at 86.1 percent. For a peanut-sized import-based economy that usually has just enough foreign reserves to pay for two months of imports must learn fiscal discipline, and for that reason, the highly competent, reputable, responsible, and professional international lender – IMF – is helping it.

The government of Pakistan and the country’s establishment was never interested in the so-called economic gains of CPEC, it just wanted the financial resources that followed the project, especially the ones in the form of multi-billion dollar kickbacks. China wanted Pakistan’s Gwadar Port, which it will get once Pakistan would fail to repay the $60 billion loan to China’s state-owned enterprises and banks.

All economic targets for the budget 2020-21 are fixed ambitiously as the government had miserably failed to achieve any major targets fixed during the current fiscal year 2019-20 that the Federal Board of Revenue was lagging behind in its tax collection targets.

Mafias are running the economy and industries in Pakistan. For example, the sugar mafia has been receiving subsidies for many years, which is made legal, flour mills are receiving wheat on discounted rates but they sell flour at exorbitant rates. Through which one can easily understand that the presented budget 2020-21 is full of loopholes.