Daily Times

Amidst all the frenzied political landscape and just less than a couple of months remaining in the completion of the second ever democratic government in Pakistan, the ruling political party Pakistan Muslim League (Nawaz),finally was able to present budget for the fiscal year 2018-19. The budget was presented by Miftah Ismail, a business tycoon turned politician who replaced Ishaq Dar after disqualification of Nawaz Shareef as a Prime Minister of Pakistan and suspension of later’s cabinet. Ismail’s appointment as a Finance minister was heavily criticized by almost all the opposition; the opposition leaderKhurshid Shahwalked out of the budget sessionalong with all of his comradescalling the former a ‘non-elected finance minister’.

The budget was, nevertheless, presented despite a tense and chaotic setting of National Assembly on 27th of April 2018. This was the sixth budget presented during the third tenure of PMLN’s government in Pakistan. The budget is seen, by many, as a pleasing strategy ahead of scheduled general elections as it focused more on amnesty schemes and tax rebates than development. Certain economic indicators showed some promising economic activity as compared to previous governments; a growth rate of 5.4% in 2018 (highest in last ten years), an expanded size of economy from Rs. 22,385 billion in 2013 to Rs. 34,396 in 2018, and an increase in per capita income from Rs. 129,005 in 2013 to Rs. 180,204 in 2018. The social indicators, however, remained stagnant or shown little improvement. Social scientists and policy practitioners have time and again criticized the government’s turning deaf year towards improving human indicators. Even this year’s budget saw a weighty reduction of 20 pc on Public Sector Development Programme as compared to previous year. Although government vows the federal PSDP to be 1030 bn from which 800 bn will be covered by federal government while the remaining 230 bn will be provided by ‘self-financing by corporations and authorities’. While having election just round the corner, a rise in current spending at the cost of development expenditure is seen as an ‘appeasement’ stunt by the incumbent government to secure electoral feats.

Agriculture, Industry and Services Sector

Agriculture sector in the past year has shown a highest growth in last 18 years as per the finance minister. However, despite some improvement in agricultural sector growth statistics, the incumbent government couldn’t materialize its agricultural policies to the fullest. After devolution and NFC awards, the agricultural sector is more of a provincial domain. The government, still expects the agricultural credits to increase to 800 billion by June 2018 from a mere 336 billion in 2013. The government has announced reduction of sales tax on agricultural machinery from outgoing year’s 7 percent to five percent in the fiscal year 2018/2019. Beside this, an amount of Rs5 million has been allocated for setting up Agricultural Research Support Fund under special initiative to support agriculture sector.

Industrial production grew by 5.8 percent, being highest in the last decade mainly because of a low-interest rate policy and relatively less energy disruptions in the FY2017. However, due to a more current spending centric budget, the power sector is slashed by Rs. 24 bn cut from the previous year. A decline in power-division spending will surely affect the electricity supply for worse in the coming years. Services sector primarily banking, retail, transportation etc. also witnessed a growth of 6.4% being the highest in the decade.Government vows to achieve the same or better growth rates in the FY2018 as well.

Health, Education, and SDGs

The budget for FY2018 has seen a slight increase in education and health budgets vis-à-vis a staggering increase in the defence budget, showing government’s lack of interest in investing in human development. Put side by side, education gets a mere 7.1 pc increase, making utopian claims of 100% enrolment, retention and graduation of children across the country seem daunting, to 97.4 bn whereas federal health budget slightly increased to Rs. 13.89 pc.Defence affairs and services budget keeps mocking the education and health budget getting a hefty chunk of Rs. 1100 bn. The government however, has allocated Rs. 10 bn for a program to end child stunting as at least 30 percent of children in Pakistan are stunted due to malnutrition and inadequate food.Despite government’s inability to achieve Sustainable Development Goals, the allocation has been astoundingly slashed from Rs. 30 bn to a mere Rs. 5 bn. This will negatively impact the social development across the country.

Energy and Water

Government has proposed to invest Rs. 138 bn in power sector for installation and continuation of work on energy projects such as Coal Fire Powered project in Jamshoro, Dasu Hydro Power Project, Kohsitan, Neelum-Jehlum Power Project and Tarbela Fourth Extension Hydro Power Project. This must be noted that allocation for energy sector has decreased from Rs. 401 bn in FY2017 to Rs. 138 in FY2018. The investments in the water sector, on the other hand, has almost been doubled as compared to outgoing year’sallocation of Rs. 36bn. Ironically, the Rs. 12.5 bn ‘Clean Drinking Water for All’ program which was to ensure the provision of clean drinking water for everyone, has been discarded completely.

Taxes

The FBR’s tax target is increased by a 10.5 percent despite announcing the tax amnesty schemes and rebates by the outgoing government. The new tax target at Rs. 4,435 bn. Out of the total increase of Rs. 442 bn, Rs. 140 bn will come from direct taxes whereas remaining Rs. 282 bn will be collected through indirect taxes. The lowered income tax rates will, as per the government, result in broadening the tax base substantially leading to an addition of another Rs. 132 bn. Income tax exemption slab has been increased from Rs. 4 lac to 12 lacs. This tax policy is implemented keeping in mind the middle-class working professionals such as doctors, engineers, teachers, etc. Outgoing government has also introduced an amnesty scheme for foreign asset holders at 3 pc on undeclared foreign assets and 5 % on undeclared liquid assets. Although, a nominal tax of Rs. 1000 and 2000 will be imposed on those earning between Rs. 0.4-0.8 million and 0.8-0.12 million respectively.

The custom duties, however, are to be increased by Rs. 154 bn which is expected to result in price hikes on imported goods. A 5.9 pc increase in the Sales Tax and 15.1 pc increase in Federal excise duties will be another step taken towards increasing the tax collection. Tax on petroleum products will surge in the FY 2018. The government also eyes to raise around Rs. 406 bn through auctioning prize bonds and treasury bills. Interest obligations, on the other hand, will increase significantly for both, foreign and domestic debts – numerically, increasing by 73.5 and 13 pc respectively.

Budget strategy of the outgoing government targets Real GDP growth rate of 6.2 pc whereas inflation rate is to be kept below 6 pc. Foreign Exchange reserves are targeted to be held around $15 bn whereas social protection plans such as BISP and Prime Minister’s Youth Scheme are aimed to be continued with fervour with an allocation of Rs. 135 bn and Rs. 10 bn, respectively.

Allocation to Special Areas:

Current budget has also witnessed a proposed allocation towards improving infrastructure and reforms of the under-developed special areas such as Gilgit-Baltistan, AJK and Fata. In an effort to mainstreaming FATA, a ten years FATA Development plan, with an outlay of 100 bn, has been approved. This ambitious plan for the distant tribal belt proposedly entails improvement in governance, urban development, connectivity, industrial development, energy, health, local governments etc. For benefiting local populations of AJK, Lipa Tunnel construction is also announced.

Development Plan – PSDF

Throughout last five years of PMLN rule, there has been an increased spending in development of infrastructure as compared to the PPP’s rule from 2008-13. Around Rs. 3000 bn have been spent which is almost 230 percent more than the total sum of 1300 bn spent during PPP’s rule. However, there have been questions on the transparency and financial integrity on incumbent government’s spending of such hefty amount.

An allocation of Rs. 310 bn is proposed for building of highways and motorways such as Khuzdar-Shahdadkot, Lahore-Multan, Gojra-Shorkot, Shorkot-Khanewal, Lahore-Sialkot, and Hazara Motorways. In addition to this, Gwadar-Quetta, Peshawar – DG Khan-Quetta- Zhob are also to be completed. Moreover, an estimated Rs. 137 bn are to be spent for the development related projects in Gwadar. In contrary to this, allocation to National Highway Authority (NHA) has been slashed by a substantial 34 pc.

Pakistan Railways, among others, will receive less than the outgoing fiscal year. Approximately around Rs. 8.5 bn less money is allocated to railways which can partially be attributed to less losses incurred by the department than previous years and also because of some un-spent amount totalling Rs. 20 bn.

The government has also budgeted Rs 6.535 billion for Information and Communication Technology under the Public Sector Development Programme (PSDP) for 2018-19.

Defence

The federal government, despite the much hyped civil-military fiasco, has allocated Rs. 1100 on account of defence budget which makes 26 pc of the total budget for the FY-2018. This allocation is 10 pc more than the defence budget of outgoing fiscal year. Out of the 1100 bn defence budget, Pakistan Army will get the largest chunk of 523 bn whereas Pakistan Airforce and Pakistan Navy will get Rs. 233.7 and Rs. 119.3 bn respectively. While Pakistan lurks behind in human development indicators, many political commentators see defence budget as a burden on an already fragile economy of the country.

Human Development and Film Industry

Despite the devolution of Human Development to provinces, Federal government vows to support the Higher education, primary health services and programs for youth. The allocations made to afore mentioned sectors will get Rs. 57 bn, 37 bn, and 10 bn respectively. In addition to this, Federal government has announced to build more than 100 sport stadiums across Pakistan on cost-sharing basis with provincial governments. The government has intended to initiate child disease detection and prevention program at district levels initially and eventually at public school levels. Although, the implantation on such a program is yet to be seen.

Film Industry, for the first time, has caught the attention of government as a fiscal package is announced to promote film and drama industry. Sales tax on film and drama industry has been reduced to 5 pc and custom duty on film production equipment has slashed to 3 pc. Further, a revolving fund is also announced for the promotion of film/drama industry along with supporting the deserving artists. A significant 50 pc rebate in income tax (for five years) is announced for the companies investing in the film / drama industry. Similarly, 50 income tax rebate is provisioned for the foreign film makers. Artists across the country such as Ayesha Omar and model Nadiya Hussain have hailed the government for announcing such packages for the promotion of arts.

Karachi

Pakistan’s highest income grossing metropolitan, Karachi, remains a high priority city for the incumbent city as per the Finance Minister. Prime minister has announced a package of Rs. 25 bn for the city’s infrastructural development and ensuring the availability of social sector facilities. Government has also announced a sea-water desalination plant in the wake of severe water crisis city faces today. The plant will be built in collaboration with the private sector producing 50 million gallons of water per day. Political commentators view this package as a political trick to gain electoral feats in Karachi.

The writer teaches Economics and Development at Bahria University, Islamabad and is founder of a civic education organization, Civic Face Pakistan. He tweets at @assad_shoaib

Published in Daily Times, May 6^th 2018.