NationalVOLUME 15 ISSUE # 22

Unrealistic estimates, ambitious targets

There is little doubt that in times, like the present one, it is difficult to make a budget, especially with regard to the targets and estimates relating to tax collection, growth projection, etc. This is what Adviser to the Prime Minister Dr Hafeez Sheikh meant in his post-budget press conference when he talked about the “uncertainty” surrounding the budget because of the impact of the coronavirus pandemic. According to him, only when there is clarity about the actual impact of the pandemic, the accuracy or otherwise of the targets set in the budget 2020-21 would be determined.

No one can dispute this line of argument but the fact remains that a budget document is a policy statement relevant for one year, a time period that should provide a reasonable level of comfort to all stakeholders within an economy, enabling them to decide whether the time is right to invest and begin operations in units, sectors irrespective of their objective being profit maximization or providing necessary physical and social infrastructure to the people.

As noted by many analysts, a significant aspect of the 2020-21 budget is that it maps out no strategy for the productive sectors to jump-start the economy. An example is the Rs50 billion fiscal relief with respect to customs and inland revenue in the budget for the next year. But the government did not deem it appropriate to rationalize its decision that it had made in the budget 2019-20 when it decided to do away with presumptive tax because it militated against documentation and the objective of matching income with assets as it maintained the same high rates of withholding tax, terming it minimum tax. In view of economic experts, retaining the high rates on the minimum tax is regressive if we plan to quickly revive the Covid-19-stricken economy.

Another point of objection is the raise in petroleum levy collection for the next year, which is budgeted at Rs450 billion against the Rs260 billion collected in the revised estimates of the current year (as opposed to the budgeted Rs216 billion for 2019-20). It implies projecting a significant rise in demand that envisages a best case scenario in terms of Covid-19 pandemic’s impact on our economy next year. But signs are that the expected economic turnaround may not materialise soon.

The estimate of Rs100 billion to be raised from privatisation is also not considered realistic. The International Monetary Fund (IMF), based on its Rapid Financing Instrument documents, has pointed out that Pakistan failed to privatise state enterprises as pledged earlier, while conditions for privatisation are not favourable now due to the pandemic.

There are also unanswered questions about the Federal Board of Revenue (FBR) tax collections target of Rs4.9 trillion which is considered to be too optimistic and unrealistic. It may be added here that Dr Hafeez Sheikh has lamented that the share of the Centre in the divisible pool was Rs2 trillion. But he did not mention the Rs501 billion from other taxes, with the petroleum levy forming the bulk of revenue from the source, and Rs1.1 trillion non-tax revenue or an additional Rs1.6 trillion giving a grand total of Rs3.6 trillion. Debt servicing, in spite of the deferment of loan and interest payments on foreign loans due to the pandemic, is projected at Rs2.9 trillion (Rs2.6 trillion as mark-up on domestic debt), which together with defence accounts for a total current expenditure of Rs4 trillion. This works out to a shortfall of Rs400 billion.

It is relevant to mention here that an additional Rs2.3 trillion has been earmarked for other items under current expenditures with pensions (military and civilian), running of the civilian government as well as Rs50 billion contingencies, accounting for another Rs1 trillion. The remaining Rs1 trillion is budgeted for grants (Rs238 billion for the Ehsaas programme out of a total allocation of Rs819 billion) and subsidies. Pays and pensions are a ticking time bomb.

On the other hand, the Ministry of Finance has submitted a concept paper for a study to formulate a comprehensive pension plan with the objective of proposing necessary steps from inception to launch and operations of the pension scheme, a project scheduled to start next month and end July 2022, at an estimated cost of Rs12.560 billion, including a $75 million loan from the World Bank (Rs 11.963 billion).

Like the previous governments, the PTI government too has shown a tendency to set ambitious revenue collection targets. The targets do not in the end translate into action with the result that all growth assumptions fall to the ground. On the other hand, ambitious targets result in higher taxes for the average man further squeezing their living standards. The approach particularly needs to be avoided in an economy which has suffered hard knocks from Covid-19.