FeaturedNationalVOLUME 19 ISSUE # 29

Budget time: a rocky road ahead

It is budget time and the government is in a dilemma as to how to bridge the gap between income and expenditure, while providing some relief to the common people groaning under the back-breaking burden of runaway inflation and sky-rocketing electricity and petrol charges.

Last week, amid uncertainty over the availability of resources, the Annual Plan Coordination Committee (APCC) approved a National Development Plan of over Rs3 trillion for 2024-25, including the federal Public Sector Development Programme (PSDP) of Rs1.221tr, to accelerate economic growth to 3.6 per cent from 2.38pc in the outgoing FY24.

Interestingly, the PSDP of Rs1.221tr is about 30pc higher than the current year’s allocation of Rs950bn, which has been further slashed to Rs717bn due to revenue shortfall. The NDP includes Rs700bn Annual Development Plan (ADP) of Punjab and Rs763bn of Sindh. Khyber Pakhtunkhwa has separately announced a Rs627bn ADP, while there is no official word about Balochistan’s ADP.

There is bad news for the social sector whose allocation for next year has been slashed to Rs83bn, down by 59pc from Rs203bn in FY24. Allocations for the health sector have been reduced by 35pc to Rs17bn, and education spending, including higher education, has been slashed by almost 62pc to Rs32bn from Rs83bn during the current year.

Curiously, the Centre has frozen the development allocations for Azad Kashmir, Gilgit-Baltistan, and tribal merged districts at their current year’s position. Another negative aspect of the annual development plan is that the allocation for the Sustainable Development Goals (SDG) has been reduced to zero for next year as against Rs61bn allocated during the current year.

The growth target for next year has been set at 3.6, to be supported by 2pc growth in agriculture, 4.4pc in the industrial sector and 4.1pc in services. The growth prospects are subject to “political stability, exchange rate stability on the back improvement in external account and external inflows, macroeconomic stabilisation under IMF’s programme and expected fall in global oil and commodity prices”, to quote the planning commission.

The agriculture sector’s growth for next year at 2pc envisages a substantial contraction in the growth momentum. The output of important crops is expected to face a contraction of 4.5pc due to the severity of the dry weather spell and inadequate water availability due to lower-than-normal rainfall, especially in the case of Kharif crops. Other crops and livestock subsectors are envisaged to grow at 4.3pc and 3.8pc, respectively.

The industrial sector is expected to do better in 2023-24 with a targeted growth of 4.4pc on the back of expected LSM growth of 3.5pc. This is expected to get a boost from improved inputs and energy supplies on the back of anticipated fall in global oil and commodity prices and further easing of import restrictions.

Out of the federal PSDP, the energy sector will receive the largest allocation next year at Rs378bn, 212pc higher than the current year’s original allocation of Rs121bn. Likewise, the water sector has been allocated Rs284bn, an increase of 92pc over the current year’s Rs148bn. The transport and communication sector, on the other hand, will receive only Rs173bn next year compared to Rs245bn this year, down by 29pc. The government has increased federal investments in infrastructure by 60pc to Rs877bn and in Science & Technology by 148pc over the current year to Rs104bn.

The total investment-to-GDP ratio is expected to increase from 13.1pc in 2023-24 to 14.2pc in 2024-25 due to expected economic turnout, improved business environment, and political stability. The government expects the fiscal deficit to narrow due to fiscal consolidation measures, with a focus on enhancing tax revenue and curtailing non-development expenditures, including subsidies. But the current account deficit is expected to widen in 2024-25 due to further easing of import restrictions to achieve the growth objectives, especially the revival of the industrial sector.

The coming budget is being formulated in the backdrop of harsh IMF demands. This is the reason why, although willing, the government cannot give any relief to the people. The hard reality is that if it wants to access international funding, which is crucial for reviving the economy. It must fulfil excessive IMF demands. In the meantime, Pakistan’s public debt — both domestic and foreign — has risen to Rs67.5 trillion on government borrowing needs to finance its surging budget deficit. According to the SBP, public debt is almost three quarters of the nation’s economic output and above 83 per cent of the total national debt of nearly Rs81tr. The present public debt stock compares unfavourably with its previous levels of Rs32.70tr in 2019 and Rs39.87tr in 2021.The finance ministry’s mid-year budget review report for FY24H1, revealed that government’s interest payments in the first half of the fiscal year jumped by 64pc to Rs4.22tr from Rs2.57tr in the same period a year before, bringing further pressure on the budget.