The PTI government has announced its first annual budget under the umbrella of its own vision of socio-economic policies for public welfare and the parameters set by the IMF. Balancing or managing the two is a real challenge ahead for the incumbent government.
The budget 2019-20 is different from all the previous ones primarily on three accounts: (1) FBR tax revenue collection target is fixed at an unprecedentedly high amount of Rs 5.5 trillion; (2) Subsidies have largely been eliminated while some curtailed; and (3) Defence budget maintained at last year's level. Apart for these three, it's largely business as usual.
Some circles, including opposition parties, have described the budget as an 'IMF budget'. Only points 1) & 2) as stated above appear to be influenced by the IMF, as increase in tax revenue collection and cut down on subsidies is the universal policy of the IMF, which is in compliance with the demands or conditionalities of its lenders. Both the points make sense. Apart from this, the budget could not have been much different, with or without the IMF, considering the accumulated ills of the last many decades.
The next 12 months will constitute a period in which the governance skills of the incumbent government will be put to real test. There are many red flags ahead. The federal government's revenue target for 2019-20 is Rs 6.7 trillion while expenditure is Rs 7 trillion, showing a deficit of around Rs 0.3 trillion to start with.
Defence expenditure is Rs 1.15 trillion while debt servicing is Rs 2.9 trillion and with other expenses only 0.7 trillion will be left out for PSDP. The net federal revenue will be Rs 3.46 trillion after transfer of Rs 3.25 trillion to province as NFC award.
India's GDP growth of over 7 percent over the last decade has widened the gap between the spending on defence by the two neighbours. India has moved well ahead. Moreover, India has opened up its defence production industry to foreign investments and technology, notably, from the US and Israel.
A PSDP allocation of Rs 0.7 trillion is insufficient for the Rs 8 trillion worth of new rolled out projects which would take eight years to conclude. The socio-economic policy for public welfare will suffer a setback. Also, with a GDP growth of 2.4 percent, more people will fall below poverty line while unemployment will increase.
The incumbent government is inclined towards public welfare at grass-root level as against infrastructure development. Accordingly, NHA budget has been halved to Rs 156 billion from Rs 310 billion in 2018 - whereas railways' budget has been halved to Rs 16 billion from Rs 39 billion in 2018-19. Likewise, there is an allocation of Rs 83 billion which appears insufficient for the Rs 3 trillion schemes rolled out under the CPEC portfolio. The CPEC is likely to slow down. The infrastructure development and the CPEC are both essential to kick-start and sustain our economy.
The FBR's tax revenue collection target of Rs 5.5 trillion is extremely challenging. The prime movers of tax revenue generation are industry, exports, investments, retail sector and real estate. Our industry remains uncompetitive for exports and domestic markets. There is not much hope to extract more revenue out of this ailing sector.
Exports, for the same reason as above, are unlikely to show any promising results which may go down further on account of withdrawal of zero-rated regime for five export sectors as announced by exporters
Foreign investment, which is driven by investor sentiments, is at its lowest of the last ten years and is likely to remain so in light of prevailing political uncertainty.
To kick-start the suspended real estate business, the government allowed non-filers to buy property but added an element of fear that he/she may face prosecution as a criminal offence, sending thereby a message across that the purchase of property by him/her could be a gate-pass to prison. The real estate market went into hibernation out of fear earlier and shall remain so unless that fear is removed.
Subsidies for the energy sector and commodities have gone up 55 percent higher to pay for inefficiency in energy sector and support package for industry. This is not sustainable. Electricity tariffs will once again have to be increased and so will the commodity prices. Same goes for other loss making public sector enterprises where good money will be poured for a bad cause. The government has not rolled out, as yet, any realistic and meaningful plan to plug these drains.
The above flash points are flagged to the government with a view to making it take cognizance of the looming danger and initiate corrective measures well in time.
The question remains whether enough skills and competence, will to deliver and ownership are available within the ranks of the government. Probably not. Leadership needs to induct talent to supplement the existing government machinery.
(The writer is the former President of Overseas Investors Chamber of Commerce and Industry)