Daily Times

The federal government will present the budget on June 111. There are now just 15 days to the expected unveiling of the document in the House, and speculations and comments are rife. The public expectations are great, while the opposition is not very keen on the upcoming event.

There is another document that is going to be put before the house and like past, would pass quietly. This is the revised budget of 2020-2021. Although this should have been a document of far greater importance than the next budget, because it is in this revised budget that actual spending and revenue receipts of the federal government will be seen. In other words, this revised document shows where the government has overspent or underspent, therefore the direction of the government is actually seen. In order to talk about the speculative next budget, let us first look into the actual figures of the outgoing 2020-2021 budget.

Review of budget 2020-2021

According to the budgetary document of Government of Pakistan, Ministry of Finance, the total outlay of the 2020-2021 budget was Rs. 7.3 trillion (Rs. 7,300.0 billion. Net revenue receipts were envisaged at Rs. 3.7 trillion.  Total expenditures were envisaged at Rs. 7.3 trillion, out of which Rs. 6.35 trillion (88.0%) were envisaged for current expenditures and the rest Rs. 0.9 trillion (12.0 %) were envisaged or development expenditures of Rs. 0.87 trillion – Rs. 650.0 billion for PSPD, another Rs 70.0 billion for development outside the PSPD framework and another Rs. 166.3 billion for loans and grants to provinces.

1. Revenue expectations BUDGET 2020-2021

On the revenue side, Rs. 5.4 trillion were to come from internal sources, Rs. 0.8 trillion from external sources and Rs.0.1 trillion from privatization proceeds, a total of Rs. 6.3 trillion. This gives us a deficit budget of approximately Rs. 1.0 trillion to be financed from bank borrowings during the current year 2020-2021.

From the internal resources, Rs. 2.0 trillion were to be collected from direct taxes and another Rs. 3.0 trillion from indirect taxes. A total of approximately Rs. 5.0 trillion to be collected by the FBR.

Fig 1 shows the break up revenue sources and total expenditure outlay of Budget 2020-2021

2. Total Expenditures BUDGET 2020-2021

The in 2020-2021, the total budgetary expenditure of Rs. 7.3 trillion was to be distributed. As such;

1. 3.0 trillion(41.0%) for Repayment of debt mark up, out of which Rs. 2.6 trillion were envisaged to pay the mark-up for internal debt and another Rs. 0.4 trillion for mark-up of foreign debt.
2. 1.3 trillion (17.6%) for defense expenditures
3. 0.9 trillion (12.0%)for grants and transfers, out of which less than Rs. 0.1 were for transfers for the provinces and Rs. 0.8 trillion for Grants
4. 0.5 trillion (7.0%) for pensions, out of which 0.37 trillion were for military pensions and Rs. 0.13 trillion for civil pensions.
5. 0.5 trillion(7.0%) for running of civil government
6. 0.25 (3.4%) for subsidies and contingencies
7. 0.9 trillion (12%) for development expenditures

Fig 2. Shows the breakup of the expenditures of Pakistan Budget 2020-2021

Total money envisaged for running the civil government in the Federal Budget was Rs. 0.5 trillion or just 7.0%of the total budget. Another 12% was give as grants and transfers to province, or a total of 19% to run the country and the civilian government.

3. Current Expenditures 2020-2021

The current expenditures in 2020-2021 Budget of Rs. 6.34 trillion was to be distributed for the ministries as

1. Debt Servicing 47.0% of Current expenditure
2. General Public Service (excluding debt repayments) 22.2% of the current expenditure
3. Defence 20.3% of the current expenditures
4. Social Protection 4.0% of the current expenditures
5. Public Order & safety 3.0% of the current expenditures
6. Education 1.4% of the current expenditures
7. Economic Affairs 1.04% of the current expenditures
8. Housing and community Amenities 0.6% of the current expenditures
9. Health & Services 0.4% of the current expenditures
10. Recreation & culture 0.2% of the current expenditures
11. Environment Protection 0.06% of the current expenditures

This can be seen from Fig 3. Breakup of the Current Expenditure, Budget 2020-2021 in percentage

Challenges

Now, for the forthcoming budget, the PTI government faces three important challenges, namely: one, to boost both Foreign Direct Investments (FDI) as well as local direct investment for the country’s economy, in order to stimulate both growth as well as to strengthen its balance of payment and foreign exchange position further. For this purpose, the government will have to bring down cost of doing business through giving subsidies to the private sector, especially the large scale industrial sector, the agricultural sector and the SME’s or to reduce both corporate as well as indirect taxes to these manufacturing sectors.

Not to forget that due to adverse economic conditions under COVID-19 and stabilising of Pakistani rupee against the dollar has substantially decreased FDI for Pakistan. Secondly, the government needs to bring down commodity prices and inflationary rates in the country in order to facilitate the poor and the lower middle classes for both political as well as socio-economic reasons. This would mean that the government has to bring down high tariffs of energy in order to decrease input prices for food and other consumer items. That would mean that the government needs to decrease the GST from 17% to at least 10. % at the retail levels.

The government will also have to take measures to decrease cost-inefficiencies in the energy sector of the country, in order to make Pakistani exportable items more compatible in the world markets. Thirdly, the government has to enhance its tax base, especially tax revenue from direct taxes in order to further diminish its budgetary deficit as well as to satisfy the conditions of IMF. The third objective is in direct contrast with the first two objectives, therefore the finance ministry in its next 2021-2022 budget will have to do some innovative thinking, so that it can help increase climate of investments, help decrease the prices of essential commodities and at the same time help increase its tax base, without resorting to indirect taxation or hidden taxation.

Recommendations

First of all, the government should find ways to reduce its liability and debt burden, so that the expenditures from this head can be reduced from 41% to near 20%. It is only then, without additional taxation, the government can have enough resources to spend on development and poverty alleviation in the country. Secondly, the government (as the Finance Minister has rightly stated), should not levy new taxes on existing tax payers, but should widen the tax net and enforce GST on retail as well as abolish withholding tax, only then can tax net be widened and economy can be documented. Cash payments above Rs.10 thousand should be discouraged.

Government should subsidise the poor and lower middle classes through focused subsidies for helping them buy essential commodities and utilities without restricting the free play of market forces and market prices. Only then, both the supply as well as the demand side can have incentives to play their role for enchasing economic growth in the country

Thirdly, the government should give tax incentives for private sector to adopt schools, hospitals environmental, and clean water projects as well as for development and production of new value added exportable products in all vital for the economy sectors – agriculture, large-scale manufacturing SME and service sector. Minimum tax limitation should be enhanced from current Rs 400 thousand to Rs. 550 thousand a year (or Rs 1500 per day). Serious revamping has to be done for education sector of the country in order to produce highly educated, equipped with modern scientific knowledge and much needed skills for the youth, so that they can contribute more in the economic uplift of the country. Budgetary allocations for environmental protection, biodiversity protection and climate change should also be seriously enhanced in line with SDGs, in order to make the living environment both for human as well as non-human residents of Pakistan more sustainable and eco-friendly.