Has Pakistan’s new budget paved the way for a charter of economy?

The federal budget for fiscal year (FY) 2022-23 presented an overall outlay of PKR 9.5 trillion. The debt and interest repayments will eat up PKR 3.9 trillion followed by PKR 2 trillion for combined defense and civil administration, ultimately leaving little room for the government’s development program or social protection allocations. While the numbers may have changed, this is largely the story in every year’s budget – a country unable to envisage fiscal space which can allow for human and social progress.

As a proportion of national income, this year’s public sector development programme (PSDP) at around PKR 800 billion is one of the lowest in 75 years history of Pakistan. There is not much that PML-N government could have done to reverse this given the limited time they have had in office to prepare their position on budget.

There are allocations for additions in infrastructure endowments including energy and water resources without a clear direction as to how existing gaps in for example energy supply chain including circular debt would be addressed. The promise of addressing state owned enterprise losses also sounds weak.

Nevertheless, this budget will be remembered on several counts. The usual hue and cry, and tearing of budget documents that one sees on the floor of the parliament wasn’t witnessed. In fact, most opposition benches were empty and those hammering the tables were adversaries from the past now coming together to present a ‘coalition budget’.

Traditionally PPP and PML-N have held very different views on the economy. However, if budget speech is of some guidance, it seems that it has packaged a bit for everyone. A boost for PPP’s Benazir Income Support Programme (BISP) and a large chunk of resources allocated to the traditional PML-N fetish - roads and highways. As PTI is not going to sit in the parliament anytime soon, does this imply that the rest of the parties have already moved towards a coalition-led and consensus-driven budget or as many had wanted a ‘Charter of Economy’?

The stress by several economists on getting the IMF program back on track is justified on the grounds that this will pave way for other inflows most notably from Saudi Arabia, UAE, China, and multilateral institutions.

Dr. Vaqar Ahmed

Where does this leave us with the IMF? IMF wanted to see hike in prices of oil, electricity, and gas – a lot of what has already been accomplished. There was also a desire to see several forms of subsidies to be rolled back immediately – a politically difficult task owing to inflationary pressures faced by the low and middle income groups. Furthermore, for fund program to be back on track, a key requirement was to minimize tax exemptions for all segments. It is hard to think how cinemas and filmmakers ended up getting preferential tax treatment for 5 years when small scale industries employing far more low-income workers are being taxed and some are on the verge of closure. There are subsidies for several sectors without any explanation on mechanisms which prevent misuse and improve the targeting of beneficiaries. Loans are being announced for the poorest of the poor farmers on whom conventional banks will never take a risk.

On the television programmes that followed the budget speech, representatives from the government side argued that they have brought down general sales tax on several inputs of agriculture sector and select manufacturing sectors, for example, pharmaceuticals. It is not clear if the fund has approved of such withdrawal of indirect taxes. In the past, we witnessed how such taxes were reintroduced through mini-budgets owing to pressure from the fund. One hopes that the present government will not resort to the practice of supplementary finance bills and there will be amicable agreement with the fund once parliament passes the budget.

The pressures on the current account are resulting in fast depleting forex reserves and diminishing value of currency. The stress by several independent economists on getting the nod from IMF and quickly having the fund program back on track is justified on the grounds that this will pave way for other inflows most notably from Saudi Arabia, UAE, China, and multilateral institutions.

Finally, it is important to note that the structure of economic growth envisaged in Annual 2022-23 may not render employment gains. There is a clear lack of confidence when the plan document states that GDP growth will taper off and investment will be moderated, and inflation will remain in double digits. In plain English this implies that there will be worsening of the hurricane before it starts to fade away.

- Dr. Vaqar Ahmed is an economist and former civil servant. He tweets @vaqarahmed