FeaturedVOLUME 18 ISSUE # 30

Budget 2023-24: unrealistic and overambitious

The federal budget 2023-24 has been variously described by observers of the national economic scene. Some commentators have called it an exercise in futility while others have characterized the budget as a jugglery of words and figures.

For example, the budget offers an overambitious estimate of revenue collection as the assumptions for the same have no sound basis. These include an overstated growth rate in tax paying sectors, shrinking capacity of existing taxpayers due to 38 percent consumer price index in May 2023, negative 8.1 percent large scale manufacturing growth during July-March 2023 and similar other hurdles. The budget also projects a greater rise in current expenditure as well as development expenditure which is clearly overstated as compared to previous years.

The budget for the next fiscal year estimates a current expenditure rise of 26.5 percent from the revised estimates of this year, and a rise of 53 percent from what was budgeted for the outgoing year, a PSDP 31 percent higher, with revenue from direct taxes to rise by 25.5 percent with the bulk from withholding taxes in the sales tax mode.

The Federal Board of Revenue’s projection of 9 trillion rupees revenue for next year is unrealistically as it is  premised on 8.9 percent import growth in US dollars, 32.4 percent growth in rupees, average exchange rate of 190 rupees to the dollar, inflation of 21 percent  which is unlikely in the face of the massive rise in the budgeted salaries and pensions that would fuel wage push inflation. Further, GDP growth of 3.5 percent and LSM growth of 3.6 percent are too optimistic given the negative 8.1 percent growth during the first ten months of the year.

Surely, Ishaq Dar’s budgetary expenditure and revenue targets are not going to find favour with the IMF not only because they are unrealistic but also due to his projection of an unsustainable negative 6.5 percent fiscal deficit for next year. The budget documents also do not contain the macroeconomic and fiscal framework that provides key indicators for the outgoing year  and, instead, computes growth, inflation, FBR tax as percentage of GDP and projects them for the next three years.

The budget for FY24 was formulated in the midst of ballooning domestic and global uncertainties, with the economy groaning under the burden of stagflation, negative growth, rising unemployment and soaring price inflation. Experts expected that in the given circumstances the budget will outline a well-thought-out strategy to steer the country out of its current crisis, and put it on the path of economic stability and debt sustainability.

But Dar’s budget speech contained no roadmap about how the government planned to pull the country out of the current economic blind alley. Instead the finance minister opted for some populist measures in view of the next elections, along with vague hints to meet tough conditions imposed by the IMF for the resumption of the soon-to-end $6.5bn bailout loan programme.

Some renowned economists have called it a fiscally irresponsible budget as no effort has been made to curtail the budget deficit. According to them, tax and non-tax revenue targets of Rs12.16tr and GDP growth of 3.5pc are not achievable which will eventually result in accumulation of more debt. Further, the expansionary nature of the budget projects a massive fiscal deficit of 6.5pc of GDP against the IMF’s programme projection of 4pc for the next year. The energy and other subsidies of Rs1.07tr, a 30-35pc increase in government employees’ salaries, and similar other expenditures are sure to draw the ire of the IMF.

In a nutshell, the budget makes a vain attempt to balance the two sides of the accounting sheet, while outlining no measures for structural reforms without which IMF conditionalities cannot be met nor can the severe crisis facing us be pushed towards a resolution.

The economic challenge we are facing is formidable which calls for a paradigm shift in how we manage our sick debt-ridden economy. The government is wrong to think that it can revive a broken economy and stimulate growth through loans and borrowed funds. We need to make some tough choices to get out of the current impasse. Our economic woes are bound to multiply until we develop a blueprint for rapid export growth, IT growth, an end to public sector entity losses, tightening the noose of the law around tax evaders, and a clear resolve to document the economy. Another essential need is to put together a new package of incentives to attract foreign direct investment to stimulate the wheels of the national economy.