Unrealistic document!

The unrealistic federal budget 2015-16 begs the question: how long would it be applicable? And the answer unfortunately may well be hours or at best days, not weeks, and certainly not months.
The reason: data in terms of expenditures and revenue collections for the current year 2014-15 is not firmed up and is based on an overly optimistic estimate for the current month of June - the last month of Pakistan''''''''s fiscal year. Past precedence indicates that in terms of revenue advance tax from large taxpayers is the most usual way to boost revenue for an outgoing year and slashing expenditure on development, with obvious negative implications on growth estimates for the year, is the usual practice to meet the budget deficit target. In other words the government would have to revisit both its expenditure and revenue budgeted estimates on 1 July, the first day of next fiscal year, and throughout the year with mini-budgets and slashes in specific development projects as and when required.
Tax collections from the Federal Board of Revenue are estimated at 2605 billion rupees in the current year (estimates include optimism with respect to collections in June) while the budgeted amount was 2810 billion rupees or there has been a shortfall of 205 billion rupees. Next fiscal year''''''''s target is 3103.7 billion rupees which is unrealistic given the set of tax measures that include: (i) a rise in Capital Gains Tax to 15 percent (still not close to the 17.5 that the Hafeez Sheikh led Finance Ministry and the brokers had agreed for 2014) against 12.5 percent in 2014-15 for holding period of less than 12 months, 12.5 percent (as against 10 percent in 2014-15) for holding period of one to two years and 7.5 percent for holding period of 2 to 4 years; (ii) a reduction in income tax (salaried) from 5 to 2 percent for those earning between 4 and 5 lakhs per year and from 10 to 7 percent for those earning the same amount (not salaried); and (iii) a decline in corporate tax rate by one percent. The largest contributor to an increase in revenue envisaged by the government is a rise in indirect taxes to 1755.8 billion rupees in 2015-16 against the revised estimates of 1496 billion rupees in the current year and sales tax would account for 1250 billion rupees whose incidence is greater on the poor relative to the rich. Privatization proceeds are budgeted at 50 billion rupees only next year which is surprising given the commitments made to the IMF by the government.
Current expenditure rose by only 17.5 billion rupees, a positive development this year. The main reason behind the small rise is attributed to a reduction in domestic debt servicing this year. The Finance Minister stated in his budget speech that servicing of domestic debt declined from the budgeted 1224.5 billion rupees to 1169.5 billion rupees due to his decision to retire domestic debt from the 3 billion dollars generated through issuance of Eurobonds and sukuk. It is unclear whether this is on paper alone - the decline however is in spite of the fact that government domestic borrowing rose from 175 billion rupees July-May 2013-14 to 579.7 billion rupees this year from scheduled banks crowding out private sector growth. However Dar expects domestic debt servicing to decline only marginally in 2015-16 and has budgeted 1168.6 billion rupees for next year under this head. Budgeted defence affairs and services were higher than budgeted by about 20 billion rupees in the current year and are expected to rise to 781 billion rupees next year.
The Public Sector Development Programme (PSDP) allocation for 2014-015 exceeded what was budgeted by 17 billion rupees; however the increase was due to an allocation of 45 billion rupees for temporarily displaced persons (not budgeted), which is not strictly a development activity and this is expected to receive another 100 billion rupee in next year''''''''s budget. However disturbingly there was a reduction in the budgeted allocation to Wapda by 14.3 billion rupees and National Highway Authority by around 2 billion rupees. Nonetheless the Prime Minister led the applause for not only the claims of achievement by the Finance Minister Ishaq Dar but also tax proposals in the Finance Bill indicative of the special relationship between the two men that has been overwhelmingly evident in the third tenure of the PML-N in government. His ''''''''achievements'''''''' have been the subject of much criticism and include (i) a strong rupee which is negatively impacting on exports but understating external borrowing. While ignoring this critical factor Dar is seeking to promote exports through lower cost of borrowing and establishment of the Exim Bank; (ii) foreign exchange reserves of 17 billion dollars with 12 billion dollars with the State Bank of Pakistan, enough for only three months of imports, supported by remittances and borrowing from multilaterals and 2 billion dollar Eurobonds and one billion dollar sukuk at rates well above the global interest rates; and (iii) access to more borrowing from external sources cited as an achievement.
What is easily challengeable was Dar''''''''s claim that there were fears that Pakistan would have defaulted by 2014 had the PML-N government not taken effective mitigating measures. He needs reminding that the PPP appointed Finance Minister Hafeez Sheikh had advised the then government to go back on the IMF programme which would have allowed multilaterals/bilaterals to uncork their stoppers for budgetary support - a proposal that was rejected by the then President Asif Ali Zardari as he was unwilling to adopt and implement politically challenging conditions with scheduled elections in May 2013. The Caretakers of 2013 also held discussions with the Fund but stayed their hand as they rightly argued that the elected government should take the decision.
What is noteworthy is that programme loans for 2015-16 are expected to decline to 187 billion rupees in 2015-16 compared to the budgeted 201 billion rupees in 2014-15 and 110 billion rupees in 2013-14 though the revised estimates for the year gave a total of 249.3 billion rupees. Reliance on project loans is expected to rise to 727.5 billion rupees - an amount that may reflect some of the projects in the China Pakistan Economic Corridor though the difference between the current and next year''''''''s allocation is only 62 billion rupees. China Safe deposits are budgeted to double from 50.6 billion rupees this year to 101 billion rupees next year.
Dar''''''''s claim that the PML-N inherited an 8.8 percent fiscal deficit is also inaccurate as he himself is responsible for between 1 to 0.7 percentage points of the 2012-13 deficit due to his decision to eliminate the entire energy sector circular debt on the last day of that fiscal year - a decision that he constantly cites as his achievement. Having his cake and eating it too has been the hallmark of his many claims in his budget speech.
The budget also envisages a decline in total subsidies to 137.6 billion rupees as opposed to 243 billion rupees in the current year; one would hope that he can meet this target however that would partly depend on commodity and oil prices in the international market, a shrinkage in the energy supply demand gap and ability to attract foreign direct investment which the government ahs failed to do during its two years in power.