EDITORIAL: The Cabinet was briefed on the state of the economy showing a markedly improved position for fiscal year 2019-20 from what was indicated in the budget documents for the current year. The major difference was in the budget deficit - the projection of 9.1 percent was downgraded to 8.1 percent, the primary deficit from 3.1 percent to 1.8 percent due to: (i) lower allocation for development expenditure - 468 billion rupees instead of the budgeted 701 billion rupees (though the column of revised development expenditure was not included in the budget documents but the figure was released recently) - an expected outcome due to the Covid-19 lockdown; (ii) out of the 1.2 trillion rupee Covid19 relief package 480 billion rupees was not spent last fiscal year, the Cabinet was informed though details of what could not be spent were not provided. One may assume that 280 billion rupees to procure 8.2 million tons of wheat included in the package was not actually an expenditure item, 43.5 billion rupees was disbursed instead of the 50 billion rupees earmarked for Utility Stores Corporation which was over and above the budgeted amount of 5 billion rupees, as well as tax and duty concessions including reducing the price of petrol, diesel, kerosene, and light diesel oil by 15 rupees each, 110 billion rupees was set aside for relief for electricity bills and exemption of customs duty on cooking oil imports, 100 billion rupee refunds for exporters/industry and Agriculture and Small and Medium Enterprises (SMEs) to receive 100 billion rupees for deferred payment of loans; and (iii) current expenditure was not shown as witnessing lower than budgeted outlay and in effect as per the budget documents current expenditure rose from the budgeted 7.292 trillion rupees to 7.618 trillion rupees in the revised estimates with Benazir Income Support Programme only accounting for a rise from the budgeted 180 billion rupees to 232 billion rupees in the revised estimates.
Resources, however, did rise mainly from external sources - the 1.4 billion dollars Rapid Financing Instrument disbursed by the International Monetary Fund in April 2020 as well as over 600 million dollars approved by the World Bank and the Asian Development Bank - an amount that covered the additional outlay envisaged by the government for Covid19 relief. This, however, did not form part of the briefing given to the Cabinet though it certainly accounted for a lower primary deficit that does not take account of borrowing costs and instead it was claimed that non tax revenue witnessed a tremendous rise from the budget amount for last year - 1.52 trillion rupees against the budgeted 895 billion rupees though the budget documents for 2020-21 give the revised projection of 1.29 trillion rupees. There was no privatization last year hence the most likely further increase in non-tax revenue could be in State Bank of Pakistan profits which were budgeted at 406 billion rupees and as per the revised estimates were 785 billion rupees. The briefing to the cabinet, however, focused on overall revenue collections (federal and provincial) amounting to 6.27 trillion rupees while tax revenue stood at 4.74 trillion rupees (with FBR accounting for 3.9 trillion rupees against the budgeted target of 5.5 trillion rupees).
The budget deficit of 8.1 percent is nonetheless noteworthy and though unsustainably high yet it indicates an improving trend. However while critics may challenge the data shared with the cabinet especially as the rise in external resources have not been identified as a contributory factor towards a lower deficit yet it must be borne in mind that at present talks with the International Monetary Fund on the second tranche release are stalled and unless firm pledges to implement the time-bound extremely harsh upfront conditions are implemented the programme faces at best a suspension and at worst a termination.
And in spite of the gains in reducing the current account deficit to no more than 3 billion rupees against 13 billion rupees at end of 2018-19 foreign exchange reserves remain largely reliant on debt (be it from multilaterals, friendly countries, foreign commercial borrowing or the so called hot money inflows). Exports, the desired form of earning foreign exchange, remain hostage to a host of structural, procedural, regulatory hurdles and a misplaced reliance on currency depreciation to raise exports, a linkage that as per the recent World Bank study is not applicable in Pakistan though it is applicable in other economies.
Copyright Business Recorder, 2020
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