Amid the Covid-19 pandemic, the PTI government presented its second annual budget before the National Assembly of Pakistan on June 12, 2020. The government has termed the budget as a crisis budget in the backdrop of challenges posed by Covid-19 pandemic and the ensuing financial crises. while there are some positive aspects, this blog is about a critical review of the budget for FY 2020-21.
According to the official statement, the government has proposed the budget based on the philosophy and strategy to provide relief to the people, not to levy new tax, striking a balance between corona expenditure and fiscal deficit, protection of social spending under the Ehsaas Program to support the vulnerable segments of the society, austerity and rationalization of expenditures will be ensured.
We must acknowledge that the government’s hands are tight to propose an ambitious budget to fulfill the promises made by the PTI government due to prevailing Covid-19 pandemic situation and ever increasing debt servicing. However, some of the areas have either un-realistic targets while some of the key areas have not been given due importance. We observe the following areas in the proposed budget for FY 2020-21 may be reviewed and further improved.
Overwhelming Revenue Targets
The government has set an overwhelming target for revenue and it is highly likely that the budgetary targets would not be met. The budgeted revenue receipts are Rs. 5,464 billion. The composition of revenue receipts includes FBR taxes is estimated at Rs. 4,963 billion inclusive of direct taxes worth Rs. 2,043 billion and Indirect taxes of Rs. 2,920 billion. Similarly, Rs. 501 billion have been budgeted under the head of other taxes with majority chunk coming from petroleum levy.
It is imperative to mention that the budgeted revenue target for last year was Rs. 5,555 billion against a revised estimation of Rs. 3,908 billion depicting a shortfall of Rs. 1,647 billion.
Presently, the tax-to-GDP ratio of Pakistan stands at 11% which is the lowest among emerging countries. Moreover, the economic activity has observed a significant decline since the outbreaks of Covid-19 which could remain the same in the near future. Therefore, the next year’s revenue targets seem inconceivable and government could be forced to announce a mini budget at the end of the second quarter of start of the third quarter.
Insignificant Fund for Development Projects
Pakistan is facing sever water crisis. Therefore, one of the priorities of this government was to handle the issue of lesser Dam or water reservoirs.
In this budget, the government has allocated Rs. 69 billion for water related projects including large multipurpose dams such as Diamer Basha Dam, Mohmand Dam, Dasu Dams etc. However, this amount is disappointing as the total cost of these project is voluminous.
The total cost of Diamer Basha dam is estimated at around USD 14 billion equivalent to Rs. 2,300 billion. Likewise, the total cost of Mohmand dam is around USD 2.2 billion amounting Rs. 360 billion and the cost of Dasu dam stands at USD 4.2 billion equivalent to Rs. 688 billion. The total cost of these three project estimated at Rs. 3,380 billion for which the government has allocated only 69 billion which is around 2%.
Allocation of meager financial resources for Relief programs
With the aftermath of Covid-19 pandemic, the government would be required to provide various relief packages for different sectors of the society. The government would be required to adopt an expansionary fiscal policy by spending in the economy primarily focusing on low income individuals and businesses such as daily wagers etc. who have been hit the hardest by the pandemic.
In the next fiscal year budget, the government has allocated an amount Rs. 208 billion under the PTI government’s flagship Ehsaas Program. The Ehsaas program includes various social safety initiatives including BISP, Pakistan Bait-ul-Mal and other departments.
Although, Rs. 21 billion has been increased as compared to the previous year, the increase does not corroborate with mass level implementation / disbursements that would be required amid the Covid-19 pandemic. It must be noted that last year Rs. 187 billion were allocated under different circumstance where government was not required to allocate funds to combat effects of the Covid-19 pandemic.
In the similar manner, the government has allocated an insubstantial amount of Rs. 2 billion under the Kamyab Jawan Program. Moreover, the government has not allocated any amount in this year budget for Prime Minister’s Youth Skill Development Initiative.
No increase in salaries of government employees
Unexpectedly, the federal government has proposed not to increase the salaries & pensions of its employees for the upcoming fiscal year.
The country is hit by Covid-19 pandemic and inflation remained in double digits for most of the fiscal year. This decision could negatively affect the net disposable income of the government employees especially lower grade staff. This decision has also faced criticism by the opposition parties.
It is estimated that the cost for 10 percent raise in salaries & pensions of government employees and pensioners is around Rs. 25 billion.
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