EDITORIAL: Irrespective of the outcome of the vote of no-confidence, the budget for next fiscal year will have to be prepared and passed by parliament or, in the event of dissolution of the assembly, passed through an ordinance which would then have to be ratified by the incoming parliament.
The PTI administration has repeatedly claimed that the economy has stabilised and is now firmly embarked on a high growth path with planning minister Asad Umar claiming during a recent press conference that this would be the first time in the country’s history that GDP growth would register above 5 percent in two consecutive years — last fiscal subsequent to rebasing and the ongoing year. However, there are two disturbing observations with respect to this high growth claim.
First, unlike past rebasing every 10 years or so, the recent rebasing was undertaken by the Pakistan Bureau of Statistics (PBS) instead of by the private sector which, critics argue, may have injected a bias in favour of the government especially when giving weightage to each sector. And second, the rebasing was carried out without a housing census and livestock survey that again may have compromised the results. It must be borne in mind that the international donor agencies have not yet endorsed the 5.37 percent growth rate for 2020-21 after the growth rate subsequent to rebasing was announced on 10 January through a press release by the National Accounts Committee and while this exercise may take a while the rate of growth for last fiscal year is cited as 3.9 percent with 4 percent projected for the ongoing year on the International Monetary Fund website.
Nonetheless even the 3.9 percent growth rate last year is impressive by global standards though it was largely premised not on higher productivity but on sale of inventories that had piled up due to the deferral of purchase decisions by the consumers attributed to the pandemic.
Be that as it may, the budget requirements for next fiscal year are unambiguous. There is an urgent need to slash across-the-board current expenditure which is expected to be in excess of the budgeted 7.5 trillion rupees subsequent to the rise in subsidies on petroleum and products and electricity as well as additional 2000 rupees per beneficiary of the Benazir Income Support Programme as announced by the Prime Minister on 28 February. There is a need for all ministries to cut their current expenditures by 20 percent and for all recipients of current expenditure to defer all major procurement for two years — outlay which remains a major source of inflation though its contribution to growth is limited. Sadly, reports indicate that Public Sector Development Programme has instead been slashed — from the budgeted 900 billion rupees to a little over 300 billion rupees — an expenditure item that in Pakistan has spearheaded growth as well as employment.
More recently under current expenditure the budgeted Ramazan package has been raised by 2 billion rupees while subsidy through the ration card scheme for three major kitchen items (expected to be launched soon) is budgeted to cost an additional 20 billion rupees. And finally, the Kamyab Pakistan programme, currently being piloted, is projected to cost 1.63 trillion rupees in three years envisaging highly subsidised loans backed by 50 percent government guarantee. These programmes can and should be supported as they not only are pro-poor but also have the seeds to achieve higher productivity in future but initially they will fuel inflation as opposed to growth — a fact that seems to have been ignored by the government. In other words, at present, the government is engaged in limiting the impact of inflation but its very policies are fuelling it instead and therefore requiring ever more subsidies/injections to contain its impact on the poor and vulnerable.
The Prime Minister stated during his recent public addresses that a rise in tax revenue made higher subsidies possible. The budgeted tax collections for the year were 6.1 trillion rupees while the government has collected 3.799 trillion rupees July-February which appears to be at par to collect the remaining 2.3 trillion rupees by year end on 30 June 2022. However, the major source of tax revenue is from imports and with the rupee being allowed to further erode to act as a shock absorber to contain imports and thereby the trade deficit it stands to reason that taxes may be unable to attain the target for the remaining four months of the year. In addition, non-tax revenue particularly petroleum levy budgeted at 610 billion rupees is now not likely to achieve even half that amount.
Thus, there is an urgency to usher in tax reforms with a view to ensuring that they are equitable, fair and non-anomalous — a requirement that is being violated by the Prime Minister’s industrial package envisaging amnesty and tax exemptions/relief measures for industries announced on 1 March 2022. Reforms in the energy sector as well as in other poorly performing state-owned entities (SOEs) are also a long standing demand not only of the international financial institutions but also of the economy which remain pending and which need to be urgently implemented. However, what is patently evident is that if it is an election year all these decisions will again be deferred with further serious repercussions on the economy. It is hoped that a consensus be reached on the way forward but that seems unlikely given the ongoing political polarization though one would hope against hope for restraint in opening the purse strings of government revenue collected from the hapless people of this country.
Copyright Business Recorder, 2022