The federal budget 2022-23 is a no brainer. Formulated in a hurry by a newly inducted coalition government, it lacks coherence and a clear sense of direction. The budget makers were not sure of their ground and that is why the budget presented in the parliament was described as “provisional”.

The budget makers faced a challenging task. Large fiscal slippages have accelerated public debt accumulation over the past few years. Interest payments now eat up 40 per cent of gross federal revenue and a staggering 71pc of net federal revenue. Higher external debt repayments, and lower financing, have meant that the overall financing gap on the external account has been met by drawing down foreign exchange reserves held by the central bank. The sharp decline in the country’s international liquidity has led to uncertainty in the markets and a loss of confidence in the rupee.

As pointed out by analysts, the targeted economic growth rate of 5pc and inflation of 11.5pc for the next year appear quite unrealistic and unattainable. At best the economy may grow by 3-3.5pc and inflation may jump far above the target on the back of rising international oil and commodity prices. It is also generally believed that the Rs9 trillion — Rs7tr tax and Rs2tr non-tax — revenue target cannot be achieved despite higher than targeted inflation because of import reduction.

There are contradictions galore in the budget. While the IMF wants an overheated economy to cool down, the budget in brief talks of ‘a growth budget’. Significantly, net federal revenue covers 90% of the two major expenses — debt servicing and defence, whereas all other expenditures have to be met by internal and external borrowing of Rs4.7 trillion. The PSDP of Rs727 is to be financed entirely by borrowing, but the medium-term budget strategy paper curiously claims that the PSDP plays an integral role in the mobilization of “indigenous resources” to improve the social-economic conditions of the people”.

In view of the macroeconomic figures, the budget priorities were: achieving significant fiscal consolidation and expansion of social safety nets to provide relief to both the poor and the lower middle class segment. To this end, the major focus should have been on revenue mobilisation and expenditure rationalisation. But the budget estimates show a different picture, especially the nature of spending with the entire burden of global commodity prices passed on to consumers. Special perks for the bureaucracy and the judiciary, large allocations for coalition partners, and ‘special’ unexplained allocations for segments like film and drama underline an elitist approach to economic management.

In the larger context, the budget needs to be evaluated in terms of fiscal consolidation and its composition. The government aims to reduce the overall budget deficit by an overly ambitious 3.7pc of GDP. But the truth is that the targeted reduction is based on both revenue overestimation as well as expenditure underestimation. The revenue overestimation is based on the unrealistic growth rate assumed. Under conditions of high inflation and severe demand management, the FBR is unlikely to show an increase in tax revenue commensurate with the increase in nominal GDP. Also, the underestimation in interest payments on account of the grossly unrealistic assumption regarding inflation makes the fiscal deficit target look unachievable. All in all, the fiscal deficit is likely to be around 2pc of GDP over the budget target in the best of conditions.

Taxation measures suggested in the budget are out of sync with ground realities. Income tax, which already has a low base, offers relief to the top brackets and stock brokers. As per past experience, a fiscal deficit of 4.9% is hard to achieve. The budget makers themselves are projecting the FBR taxes share in GDP to increase marginally from 8.96% in FY22 to 9% in FY23. Non-tax revenue is also unlikely to increase.

In FY22, the target of GDP growth was 5%. To achieve this, a rate of investment of 16.1% was planned. The same target of 5% growth has been fixed for FY23, but it is to be achieved by a significantly lower rate of investment of 14.7%. At best, the budget targets near-term challenges facing the nation and is an attempt to steer the flagging economy out of its current crisis through the revival of the suspended IMF bailout package that would also unlock financing from other bilateral and multilateral lenders and ease Pakistan’s balance of payments difficulties.

The overwhelming sense of the budget is that it has tried to balance the IMF-mandated austerity with measures that basically seek to appease the voters during the last year of the present parliamentary term. In the opinion of most experts, the implementation of the budget plans is not going to be easy. In other words, the next fiscal year will be extremely tough for ordinary Pakistanis.