The government has presented an ambitious budget for the next financial year and set the growth of gross domestic product (GDP) at 2.1pc for the fiscal year 2020-21, at a time when international monetary organizations estimate Pakistan may fall into a recession, for the first time in 68 years, over the severe impact of the deadly pandemic, as its economy is expected to shrink up to 2.2pc and per capita income will decline sharply.
The budget was announced at a difficult time when the country faces a health crisis caused by the outbreak of the coronavirus, which has shaken the economy. It was finalised after talks with the International Monetary Fund (IMF) and it was agreed that the federal government would freeze the size of its expenditures. According to estimates, Covid-19 has caused a loss of over Rs3 trillion to the national income.
Adviser to the Prime Minister on Finance and Revenue Dr Abdul Hafeez Shaikh also called the budget “ambitious”, but admitted that whether the government achieves its targets would depend on the fallout from the Covid-19 pandemic. The government has set the Federal Board of Revenue (FBR) revenue target at Rs4.95 trillion for the next year while defence allocations amounted to around Rs1.3 trillion. The development programme was budgeted at Rs650 billion to support growth prospects. Total revenue is budgeted at Rs6,573 billion, of which net federal revenue will be Rs3,700 billion. FBR tax collection has been budgeted at Rs4,963 billion, which is lower than last year’s original budgeted amount of Rs5,555 billion.
According to the government, no new tax has been introduced in the budget and it was implementing an expansionary fiscal policy. Its major achievements in the outgoing fiscal year were a 73 per cent decline in the current account deficit, which is now under $3 billion. There is also a primary surplus which it achieved in the past nine months. The budget deficit shrank from 5pc to 3.8pc while the International Monetary Fund (IMF) provided an extended facility of Rs6 billion and remittances increased from Rs16b to Rs17b.
The total size of the budget or the total expenditure for the next year stood at Rs7,136 billion — slightly higher than the budgeted figure for the previous year. Of it, current expenditure for the next fiscal year was budgeted at Rs6,345 billion, up from Rs6,193b budgeted last year. Defence affairs make up Rs1,289 billion, up 11.8pc from the previous year, with interest payments making up Rs2,946 billion. Allocations for education have been budgeted at Rs83.3 billion, up 7.9pc from last year’s Rs77.2 billion. Health allocations for the next year have more than doubled (130pc rise) to Rs25.5 billion from last year’s Rs11 billion. The funds would be used to improve health services and digitise the framework.
Total expenditure for the Public Sector Development Programme (PSDP) for the next fiscal year has been estimated at Rs1,324 billion, which is 18pc below last year’s budget. Of this, federal PSDP has been allocated Rs650 billion, while Rs676 billion has been allocated to provinces.
The fiscal deficit would be 7pc of GDP and has been budgeted at Rs3,195 billion for FY2021. The government aims to pull out the economy from a 0.4pc contraction and go for a 2.1pc growth in GDP for the next fiscal year. Consumer Price Index (CPI) inflation for fiscal year 2021 has been budgeted at 6.5pc, down from a projection of 13pc last year.
Pakistan’s gross domestic product (GDP) is estimated to have faced a Rs3tr loss from the coronavirus. The GDP was expected to increase by three per cent with the support of economic policies, but it will now go down by -0.4pc, which means the national income would actually face 3pc to 3.5pc loss during the year. FBR revenues, which were projected to reach Rs4.7tr before the Covid-19 crisis, would now hardly be Rs3.9tr. About Rs800b loss was simply on account of revenue and the situation did not allow the government to further tighten the businesses and people in revenue pressure but warranted a helping hand to provide them with liquidity to better support the squeezing economy. The government provided a Rs1.2tr economic stimulus package to provide relief to various sectors of the economy and people, and to manage the coronavirus damage in a better way, while the State Bank of Pakistan provided subsidy for implementation of different programmes to provide support and relief to small and medium enterprises.
The agriculture sector performed better with 2.67pc growth even though it missed the 3.5pc target. The industry went down by -2.64pc against a 2.3pc growth target, while the services sector dipped by -3.4pc against a 4.8pc growth target. A -7.1pc contract in transport and communication and a -22.9pc fall in manufacturing was also witnessed.
According to the government, it is a “relief budget” because it has not imposed new taxes for the next year due to the crises created by the pandemic. Ironically, it had to present a “tax-free” budget when it direly needed funds to tackle the heath crisis. The Annual Development Plan (ADP) underlines that the growth targets are subject to risks of extreme weather fluctuations, the ongoing Covid-19 pandemic, interruption in envisaged reforms and non-aligned monetary and fiscal policies.
The government has not only missed the targets for the last year, but it is also uncertain about achieving them in the new fiscal year as the pandemic continues to play havoc in the country and there are also chances of its recurrence in the future.