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A trembling budget

The fiscal year 2017-18 budget is designed for election year objective. It is of little value to the economic health in the medium to long term.

Last month, Finance Minister Ishaq Dar unveiled federal budget 2017-18 with a total outlay of Rs4.75 trillion, which is a deficit budget. It presented a budget deficit target which is Rs217 billion higher than what had been agreed with the International Monetary Fund (MF). The government allocated Rs1.001 trillion for federal development spending, including Rs272 billion for special schemes. Half of the total budget or Rs2.3 trillion will be spent on two major heads namely servicing of soaring debt and defense of the country.

The Finance Minister, however, gave relief on agriculture and technology startups. The salaried-class was offered by merging seven-year old 50 percent ad hoc allowance and giving further 10 percent increase in salaries. Landmark Rs1.001 trillion allocated for development budget. The Finance Minister did not announce measures to reform the Federal Board of Revenue (FBR) and loss-making public sector enterprises like the ailing Pakistan Airlines, the Pakistan Steel Mills and power distribution and generation companies while fearing severe criticism in the upcoming general election.

He did not say a word on privatization. The tax burden of the existing sectors has been further increased. The budget would once again encourage inflation due to increase in taxation on consumer goods.

For consumers at least 400 imported items, including cosmetics, cell phones, cigarettes, imported drinks, auto parts and electronics, will become more expensive through an additional levy. Tax rates on steel, cement, garments, leather and surgical goods have been further increased.

The budget relied on taxing the imported goods to enhance its revenues, which will stoke inflation in the country. The cost of construction industry will significantly go up, the food items will become expensive and the corporate sector that is already paying heavy taxes will get even more burdened.

The prices of almost all the goods will go up after the finance minister announced increase in withholding tax rates on all kinds of goods sold by non-filing manufacturers, wholesalers and distributors.

He created mistrust between him and the business community. He did not fulfill his promise to end super tax collected from banks and companies and instead extended it for a third year.

The defence spending has been proposed at Rs920.2 billion, higher by Rs79 billion over this year’s revised spending. An amount of Rs376.8 billion has been proposed for running the civilian government.

The social spending on Benazir Income Support Programme marginally grow by Rs121 billion.

Excluding foreign loan repayments, the total estimated size of federal expenditures is Rs4.75 trillion, which is 11.7 percent higher than the revised estimates of Rs4.26 trillion.

By including foreign loan repayments, the total outlay will increase to Rs5.1 trillion. The federal government approved Rs138.8 billion subsidies for the next fiscal year.

Government did not include the impact of Rs3.50 per unit reduction in electricity prices for agriculture tubewells in the budget. The power subsides are only Rs118 billion.

The four provinces will get Rs2.39 trillion as their share in federal taxes which will be 12.4 percent higher than in the outgoing fiscal year. Punjab will get the highest amount of Rs1.16 trillion, Sindh Rs612.5 billion, Khyber Pakhtunkhwa Rs389.9 billion and Balochistan Rs220 billion.

He announced to reduce mark-up rates from 15 percent to 9.9 percent for farmers holding 12.5 acres of land. Small loan of up to Rs50, 000 per farmer will be provided to two million farmers by the ZTBL and the NBP. The State Bank of Pakistan will monitor the implementation of this new scheme.

The volume of agriculture credit is being enhanced to Rs1.001 trillion from the last year’s target of Rs700 billion which will be an increase of 43 percent. As a further measure to support farmers, the government has already decided to sell the existing stock of imported urea fertilizer available with the NFML at a concessional Rs1, 000 per bag. GST has been reduced from Rs400 to Rs100 per 50 kg bag. This will have a subsidy impact of Rs.13.8 billion.

In order to facilitate the farmers in obtaining credit from banks, the State Bank will take steps to align the banking system with the Land Record Management Information System for mortgaging of a property by the banks or farmers.

In the housing sector, a risk sharing guarantee scheme for low-income housing has been announced and the government will provide 40 percent credit guarantee cover to banks and the SME sector. In order to enable banks to provide financing to the SME sector, the government announced to introduce Risk Mitigation Facility for SMEs through Rs3.5 billion fund to be established in the State Bank of Pakistan (SBP). The facility will cater to both Islamic and conventional banking products.

The Finance Minister also expected the government to add 3,600MW of electricity to the national grid. Through additional reforms in the energy sector, the government may eventually boost the national grid by 10,000MW. In the future there is scope for increasing the capacity of the national grid by an unprecedented 15,000MW. A sum of Rs180 billion has been earmarked for China-Pakistan Economic Corridor-related development projects in the country, some Rs44 billion alone will be spent the western route of CPEC.

The allocation for the health sector has been set at Rs49 billion. The federal government intends to spend five billion rupees on the reconstruction and rehabilitation of damaged infrastructure in the Federally Administered Tribal Areas.

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