Past and Present budget – Performance and Expectation

The Pakistan Tehreek-e-Insaf (PTI) government came to power after the 2018 general elections with Prime Minister Imran Khan at the helm of political affairs.

The government presented its first budget for the FY2019-20 on 11th June, 2019 amid a much-anticipated austerity drive. Now the government is presenting its second budget under different circumstances due to the adverse economic situation and the coronavirus pandemic.

Federal Budget 2019-20

Minister of State for Revenue Hammad Azhar had unveiled the first budget for fiscal year 2019-20 with an outlay of Rs7.02 trillion in the National Assembly.

Asad Umar had been ousted as Finance Minister before passing even the first budget and Hafeez Shaikh was brought it as the Prime Minister’s Adviser on Finance and Revenue.

The minister said that the government has brought a new thought, commitment and approach to governance. He said it was time to lift the people who have been left behind and recalled the economic situation the government has faced since coming into power.

The austerity-oriented budget has proposed a 10 percent cut in ministers’ salaries and a subsidy worth Rs40 billion rupees (US $2.6 million) on gas and electricity. The salaries of government employees and the pension received a ten percent hike.

The total federal revenues were Rs 6.717 trillion which is 19 percent higher than the previous year’s revenues of Rs 5.661 trillion. The federal budget deficit was Rs 3.56 trillion

The revenue collection by FBR was Rs 5.555 trillion, 12.6 percent of GDP. An amount of Rs 3.255 trillion would be distributed among the provinces under 7th NFC Award, which is 32 percent higher than the current year’s share of Rs 2.465 trillion.

Pakistan s trade deficit had been reduced by $4 billion and stood at $22 billion. The total debt has reach Rs31 trillion due to high-interest loans. Foreign exchange reserves had dropped below $10 billion. The current account deficit had reached a historic peak of $20bn, while the trade deficit had reached $32bn. The fiscal deficit was more than Rs2.26 trillion.

The minister said then stated the current account deficit will be reduced to 6.5pc in FY19-20 and exports will be boosted through a revised duty structure. Power and gas will be made cheaper and free trade agreements will be re-evaluated. The government had borrowed $9.2 billion from China, Kingdom of Saudi Arabia, and UAE.

The circular debt was reduced by Rs12 billion per month and it was brought down to 26 billion rupees from 38 billion rupees. The government said it acted with responsibility and took steps for economic stabilisation.

The situation now

The situation is much better than the previous year as the coronavirus pandemic brought any onslaught on the national economy and trading activities. The government received relief as debt repayments were suspended from the IMF and other multi-lateral organizations.

Not much is known about the budget 2020-21 which has been guarded with secrecy by the Finance Division.  The only revelation was made by Finance Adviser Hafeez Shaikh who revealed that no new taxes will be imposed in the budget.

The government is expected to provide massive finance packages to various sectors of the economy. A consensus has been reached with the IMF to increase salaries and pension of government employees.

More details were known after a meeting of National Economic Council (NEC), the highest constitutional economic decision-making body of the country, chaired by PM Imran Khan.

The federal Public Sector Development Programme (PSDP) of Rs650 billion with foreign exchange component of Rs72.5 billion and provincial annual development programmes (ADPs) of Rs674 billion including foreign component of Rs222.5 billion for the upcoming budget.

Regarding the macroeconomic framework, GDP growth rate at 2.1 percent from earlier projected figure of 2.3 percent and inflation at 6.5 percent for the next budget 2020-21 has been set.

The NEC approved Rs364 billion for infrastructure projects for coming budget against Rs383 billion in outgoing fiscal year. The energy sector project allocation stood at Rs80 billion in coming budget against Rs80 billion in outgoing fiscal.

The transport and communication sector allocation will be Rs197, water sector allocation stands at Rs70 billion, and physical planning and housing Rs35 billion in coming budget. The social sector allocation has been jacked up to Rs249 billion for budget against allocated amount of Rs206 billion for the outgoing fiscal year.

The macroeconomic framework envisages overall macroeconomic stability in view of fiscal consolidation, improving external account and revival in agriculture and industrial growth. GDP growth for 2020-21 is targeted at 2.1 percent with contributions from agriculture (2.8 percent), industry (0.1 percent) and services (2.6 percent).

The balanced monetary policy is aimed at supporting adjustment process to restore macroeconomic stability and manage aggregate demand. The challenge would be to strike a balance between growth and stability in such a way that monetary policy tools many not suffocate economic growth while containing inflationary pressure.