ISLAMABAD: The government said on Thursday that the GDP growth target has been increased to five percent in the revised budget strategy paper for the next fiscal year and budget deficit to 6.3 percent on the basis of one percent provincial budget surplus following increased economic activities in the country.
However, at the same time, Special Assistant to the Prime Minister on Finance and Revenue Dr Waqar Masood and senior officials of the Finance Ministry, during a meeting of the finance standing committee of the National Assembly, stated that “these numbers in the revised budget strategy paper are not final”.
The meeting of the finance committee chaired by Faiz Ullah was informed by Dr Waqar Masood that since the last budget strategy paper was approved by the cabinet in April, some very important changes have taken place and provisional estimates of 3.94 percent GDP growth for 2020-21 indicate that economic activities are also picking up due to incentives and increased credit provided to businesses as part of stimulus package.
Waqar Masood said that discussions with the International Monetary Fund (IMF) on working paper were ongoing and the Fund has accepted, in principle, government’s suggestion that expecting from Pakistan to take measures that can increase the food inflation would be grossly unfair especially during the third wave of Covid-19.
The IMF, he said, agreed in principle, to Pakistan’s position, and added that Pakistan would continue to maintain programme’s discipline of austerity and 2.4 percent fiscal adjustment has already been made.
However, he said, this year, the government would provide some ease to people and there would be no such tax that leads to fuelling food inflation. Government employees’ salaries would be raised, he added.
The secretary finance Kamran Ali Afzal (replaced by Yusuf Khan a few hours later) said that this is a new framework as part of reform process of the Public Finance Management Act (PFM) and there is no finality attached to the budget strategy paper yet.
Another senior official of Finance Ministry, while briefing the committee on the revised budget strategy paper, stated that the GDP growth as well as budget deficit, inflation and numbers for other macroeconomic indicators for the next fiscal year have been changed.
He added that 4.2 percent GDP growth estimated for the next fiscal year in the previous budget strategy paper has now been revised upward to five percent or 5.02 percent, fiscal deficit to 6.3 percent from six percent (on the assumption that provinces would give Rs442 billion or around one percent budget surplus otherwise budget deficit be at 7.3 percent) and inflation at 8.2 percent for the next fiscal year.
He said that gross revenue collection target was being projected at Rs7,909 billion and public sector development programme (PSDP) at Rs900 billion.
The size of the GDP has been projected at Rs54341 billion and primary balance negative at 0.6 percent.
Public debt-to-GDP has been revised to 84.3 percent of the GDP to 81.4 percent of the GDP, and current account deficit to negative $4.8 billion from $4.7 billion, and the size of the GDP from Rs52,462 billion to Rs54,341 billion.
The parliamentarians protested over not being shared the break-up of gross revenue collection, and stated that the government was hiding the FBR revenue projection for the next fiscal year primarily, because it might reveal the quantum of taxation measures the government would take in the upcoming budget.
In response to the members’ questions, Dr Masood said that the IMF wanted Rs5.96 trillion tax collection for the next fiscal year.
We will try to get as close as possible to this target, he added.
While further elaborating, he said as the FBR revenue collection target of Rs4.7 trillion for the outgoing fiscal year would be easily surpassed and nominal growth in revenue would be 14 percent.
This means that the government would achieve Rs5.4 trillion revenue collection through nominal growth on account of inflation and GDP.
He said that half of Rs300 billion to Rs400 billion revenue is expected from corporate tax exemptions, which have already been withdrawn and the remaining half would be achieved by implementing expansion of sales tax to retail level through expansion of point of sales (POS).
There is also a proposal to reduce the sales tax rate for retail sector besides introducing a reward scheme on sales tax, which will benefit the buyer, he added.
About circular debt, Dr Masood said that current stock of circular debt would be reduced to large extent through non cash settlement between government and government departments of Rs 400 billion and a summary to this effect has been prepared. He said that another Rs 400 billion settlement would be possible as a result of implementation of agreement with the IPPs whereas PHPL Rs 800 billion would be converted into government debt.
He also clarified that increase in electricity tariffs has been postponed for the time being only.
The government would provide targeted subsidies and allocated for power sector as per the requirement of the Power Division.
The meeting was informed that Rs100 billion has been allocated in the next fiscal year’s budget for Covid-19 and required funding would also be arranged for procurement of vaccines to vaccinate another 70 million population.
Dr Imtiaz, joint economic adviser Finance Ministry, said the spike in the prices of commodities, including palm oil and crude oil, in the international market has been one of the major factors behind rising food inflation in the country.
He said the prices of palm oil, crude oil and essential commodities have increased 67 percent and the government is expecting the inflation would decelerate in the next fiscal year due to healthy output in the agriculture sector, etc.
The meeting also wanted that the forensic audit of the subsidy provided during the Ramazan package should be conducted and a report be submitted to the committee; upon which, the Finance Ministry said that audit of the Utility Stores Corporation (USC) has already been ordered and would be completed by end June 2021.
Syed Naveed Qamar said that since the new finance minister adopted an entirely new approach to the budget as opposed to his predecessor he wondered if the IMF did not agree to the budget then what would happen.
Dr Masood said the economic team was in discussions with the IMF and nothing is final yet as these are merely projections, which would be given a final shape in the light of understanding with the Fund.
Other members said that they are presented a rosy picture at the time of budget-making but unfortunately ground realities have never changed.
Copyright Business Recorder, 2021