Home / This Week / Cover Stories / BUDGET REVIEW: Budget 2016-17 – How far is it away from reality?

BUDGET REVIEW: Budget 2016-17 – How far is it away from reality?

High aggregate demand and falling energy prices for the past couple of years should have been a stimulus for domestic investment and steadily rising production. That is not how it has worked out, with rising demand leaking into imports and, probably, into the shadow economy.

Over the past five years, growth has been fueled by rising consumption, now 89 percent of GDP, and growing at around 5 percent annually against GDP growth of under 4 percent per year. The modest GDP growth we have been able to muster is led by the services sector, while manufacturing and agriculture have performed below GDP, at 3.5 percent and 3pc respectively.

In fact, the major productive sectors of the economy look moribund and forward-looking indicators are lackluster. The substantially reduced trend for investment to GDP, down from 22 percent in 2007 to under 15 percent in recent years, continues. Much of the 4.7 percent growth reported for year to date 2016 in manufacturing comes from greater capacity utilization in a variety of low-weight sectors — the biggest textiles, with a 20 percent index weight, in fact saw a 0.6 percent decline in the year to date.

Agricultural production shows no positive direction. Annual growth is squeezed out of fluctuating sizes of different crops, and any momentum for broad-based increase in productivity is missing.

Two aspects of our economic environment that weigh down on growth are the huge (effective) share of indirect taxes in tax revenue and the second is the declining contribution of national savings to national development. Instead of fueling growth, savings are largely recycled by banks to serve governments’ fiscal needs. Indirect taxes are already, effectively, 85 percent of Federal Board of Revenue (FBR) tax take (if the non-income based aspects of direct taxes, such as withholding taxes, are considered).

Political and policy continuity are the key to achieving high sustainable growth. There is considerable expectation that China-Pakistan Economic Corridor (CPEC will become the catalyst for broad-based acceleration. But CPEC cannot become our next medium-term development plan, which must have a wider canvas, including objectives for social and human indicators. But it can become the means by which internal productive capacity is regenerated across the industrial, agricultural and commercial sectors.

If we are to reap benefits, we must galvanize the already delayed planning process for ancillary industry enabled by CPEC through public-private partnership. If we continue to treat our institutions as an extension of politics, policy development will neither be independent nor durable, and we will remain stuck in growth without development.


– Total outlay of Rs4.39 trillion for the fiscal year 2016-17 (deficit budget with a Rs1.2 trillion gap in income and expenditure).

– Growth target at 5.7 percent in the next fiscal year .

– Tax revenue – Proposed tax-to-GDP ratio of over seven percent, Rs3.6 trillion tax target for the next fiscal year. The budget proposes zero duty on exports of textile, sports goods, surgical equipment and leather goods.

– Defense budget — Rs860 billion have been allocated for defense expenses, showing 10.2 percent increase in the defense budget comparing last year expense of Rs 780 billion.

– Agriculture sector — The agriculture sector suffered due to floods and depressed prices. Rs341 billion announced under Kissan package to help farmers. Price of fertilizers have also been reduced and agriculture tube wells electricity price cut by Rs3.5 per unit. The exports go down by 11 percent to $18.2 billion. The country suffered 0.5 percent loss in the GDP growth due to loss of the cotton crop.

– Fiscal deficit — Fiscal deficit has been proposed to be restricted at 4.3 percent for the next fiscal year of the GDP.

– Concession of customs duty — Concession of customs duty for dairy, livestock and poultry sectors as well as fish farming announced in the budget speech.

– Super Tax — Super tax will be imposed on an income over Rs500 million.

– Capital Gain Tax relief — Capital Gain Tax relief period has been extended from four to five years.

– Public debt management — Revenue collection target in excess of Rs3,000 billion during the FY2015-16. Budget deficit to be reduced to 4.3 percent for the FY 2016 ending in June 2016.

– Benazir Income Support Program — Rs115 billion will be allocated to the Benazir Income Support Program for the benefit of 350 million families until June 2016.

– Pensions — Rs245 billion have been earmarked for the pensioners in the fiscal year 2016-17.

– Annual Development Program — Rs800 billion have been earmarked for the Annual Development Program with foreign assistance of Rs143 billion.

– Electricity — More than 10,000MW of additional electricity would be added to the national grid by March 2018.

– PM youth loan program — Rs20 billion have been allocated for the PM Youth and Skill Programs.

– Ad-hoc relief for government employees – 10 percent ad hoc relief was announced for government employees. Conveyance allowance of Grade 1 to 15 employees has been enhanced by 50 percent. Minimum wage fixed at Rs 14,000.

– Taxes on cigarettes, smartphones and foreign dramas/TV channels imposed

– Development – 20 percent increase in the Public Sector Development Program (PSDP) allocation with Rs1.675 trillion set aside for FY16-17, of which the Federal PSDP makes up Rs800 billion. These funds would be utilized for various ongoing and new development schemes. For roads and motorways construction, an amount of Rs188 billion has been allocated, with the cost of Karachi-Lahore motorway included in the amount.

– A total of Rs2 billion has been set aside for the construction of a State Guest House, while Rs1.02 billion has been allocated to the Climate Change Division under the PSDP. Allocation of Rs32 billion for Diamer-Bhasha dam and Rs42 billion for Wasoo dam respectively. For hydel-energy projects, an allocation of Rs61 billion for the 969MW Neelum-Jhelum Hydropower Project, Rs16.5 billion for Tarbela dam and Rs60 billion for other power related projects. Rs11.94 billion will be spent for development of IT infrastructure in rural areas, and Rs1.9 billion will be spent in IT development in all four provinces. Rs14 billion has been set aside for purchase of new bogies for railways. Rs37 billion has also been set aside for railway employee salaries.

– For new industrial plants and expansion, a five-year tax credit till June 3, 2019 was announced while to further support industries, custom duty on import of industrial raw material is being brought down to 3 percent.

The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

Check Also

An undivided GCC is in Pakistan’s favor

An undivided GCC is in Pakistan’s favor

In June 2017, Saudi Arabia, the UAE, Bahrain and Egypt broke off diplomatic and transportation …

Leave a Reply