Daily Times

Upcoming Budget is PTI’s full year first Financial Document which will be revealed in second week of this month. It is predicted that the budget 2019-20 will be based on conditions imposed by International Monetary Funds (IMF) which state that primary deficit excluding debt servicing is acceptable to 0.6% of Gross Domestic Product (GDP) which otherwise is around 2.5% of GDP in present situation. This means that some real strict unpopular measures to be taken by the government even contrary to their manifesto on no choice basis. Huge Tax collection target of Rs.5.5 Trillion i.e. additional Rs.800Billion and reducing subsidiary to at least half of outgoing fiscal year i.e. from Rs.680Billion to Rs.350Billion will bring more inflation and economic slowdown resulting poverty and unemployment. In presence of 18th amendment where funds to be shared with provinces, devolution of responsibilities is expected for macroeconomic stability in wake of the conditions under which IMF programme is agreed. However it can bring political instability which otherwise can be avoided if consensus may be achieved by making present grim situation as economic emergency where a support to be requested from provinces for a definite time period. Civil and Military leadership is agreed on austerity measures for upcoming budget with no compromise on minimum deterrence level in a scenario of regional conflicts continued. According to some experts if primary deficit may be controlled by limiting present tax gap Pakistan would not only be able to meet its current expenditures but government will not be borrowing further for debt servicing in a few years as done by the Hungarian government.

The GDP growth target of 6.5% is not a final figure and could be higher if CPEC activities increase. The plan envisages average inflation of 6.5% for the next five years

Pakistan Tehreek Insaf (PTI) came into power with a slogan of “Change”. PTI’s Party Chairman and now Prime Minister Imran Khan claimed during his days of opposition, especially in times of history long dharna (Sit in) against corruption that he will bring back looted money and will never go to IMF while inward remittance will increase tremendously, if he comes to power. It was that dream on which people of Pakistan chose PTI over PMLN and PPP for positive change towards prosperous Pakistan where poor would have his say and may live an easier life. The dream went flat on PTI’s first year of governance while blaming PMLN for manhandling the economy which resulted in huge debt servicing making no roam for present government to do some good for general public. Despite of the fact that PTI is telling the true story but it seems that there was no homework and false statements were made about correction of economy which were backed by no such practical measures. Prime Minister Imran Khan, sensing the situation as critical, took no time and changed his economic manager and so called brain of PTI, Mr. AsadUmer with Ex PPP Finance Minister Mr. Hafeez Shaikh as advisor to the ministry, who concluded long awaited, made notorious, IMF deal. Hence contrary to party’s rhetoric, going to IMF is suicidal; the deal with the same is being done. Now, when IMF bailout is expected in July this year, conditions imposed by the fund will lead to make upcoming Budget 2019-20. Please note that IMF is like a financial institution which requires its borrower to have such capacity that may secure the repayments of extended loan. For such reason IMF team imposes some conditions over the negotiating country which relate to increase revenues with available resources and limits expenditures so that not only debt servicing become secured but country may be able to get out of Balance of Payment Crisis.

Now, when controlling primary deficit is a major focus of upcoming budget 2019-20, huge revenue collection target of Rs.5.5 Trillion, 35% Year on Year rise in Federal Board of Revenue’s (FBR) expected collection for Fiscal Year 2019 which already not achieved, seems irrational or over committed. In last 10 years FBR collected tax revenue with a growth rate of 14.9% and target of 35% growth over and above of already failed target seems very difficult and we fear some real big extraordinary measures by the government in coming budget which will add injury to already rotten lives of general public and entrepreneurs who are victims of economic slowdown. For the accomplishment of this task government is planning some harsh measures including removal of zero rated regime, Petroleum products to bear the burnt, General Sales tax to increase by 1%, restoring Salary slabs, restoration of mobile card tax, corporate tax to increase and super tax to reinstate. Apart from these measures on already documented economy strict measures are being taken for non-tax payers to bring them into tax net. For this reason FBR trying to make tax collection process easier and introducing Single Portal Online facility. Amnesty Scheme via Asset Declaration Ordinance 2019 is also part of the process to broaden tax net. FBR will also make it compulsory for the manufacturers to ensure declaration and filing of returns by their distributors and dealers. By restoring income slabs and mobile card taxation government can collect incremental revenue upto Rs.200Billion which can further get support from increase in GST, corporate tax and reinstating super tax. Please note that it was decided that the percentage of corporate tax to go down from 35% (2013) to 29% by 2019. In other measures FBR is committed to charging sales tax to restaurants and withdrawing free mobile phone facility from incoming passenger.

Another window of reducing primary deficit is to let go subsidies and tax exemptions which otherwise cost Rs.680 Billion to national exchequer and can achieve 85% of said IMF target. Government is eager to bring down the amount of subsidies to 50% of the present value so that some relaxation may be available to certain industries playing part in raising GDP. However exemptions related to CPEC (Chian Pakistan Economic Corridor) projects and investments from Saudi Arabia and UAE is a big question mark. It is imperative to mention here that out of Budget estimates for expenses, debt servicing takes away 36.4%, defence gets 18.6%, civil government allocation remains 7.5% while pension upto 6.2%. By adding these figures together with some other small expenditure it aggregates around 70% making a very small room for supporting subsidies expenses, hence; the gap is met by borrowing. Budget proposal predicts that GST to restore on Zero Rated export based industries i.e. Textiles, Leather, Surgical goods, Sports and Carpets. Experts oppose this proposal with objection that it will reduce exports further resulting Trade Deficit to soar. However, it is observed that despite of so much subsidized sector like Textile it did not contributed much in increasing export due to old fashioned and easy to do business approach of owners. It is further noted that over invoicing is being charged by exporters in their sales to local market yet availing the benefits reserved for exports while verification has also been difficult. Please note that by abolishing zero rated regime Government can earn some Rs.80Billion in shape of tax collection.

Recently PTI government has revealed some facts from its first and Pakistan’s 12thfive years plan in National Economic Council meeting chaired by Prime Minister of Pakistan. It is stated that the main pillars of next five years plan are; equitable regional development with job-led environment estimating the GDP growth from 4% for the next fiscal year to 6.5% by the end of five years. The GDP growth target of 6.5% is not a final figure and could be higher if CPEC activities increase. The plan envisages average inflation of 6.5% for the next five years. With IMF on board and rising trend of interest rates where situation of economic slowdown is being observed not only in Pakistan but a further slowdown is expected due to US – China trade war, five years plans seems unrealistic just like over ambitious targets related to Budget 2019-20. A close monitoring, multi-dimensional effective economic policies, consensus on distribution of resources by Provinces, declaring this economic situation as national emergency to get positive involvement of all political parties and stakeholders can perhaps fetch some results in favour pf Pakistan’s national exchequer.

The writer is an Economist, Corporate Finance Specialist and a Chartered Banker UK