In the simplest words, the budget of a country expresses developmental plans for a year and measures to finance these plans. The FY18 budget is the last budget of the third term of Mian Muhammad Nawaz Sharif as the Prime Minister of Pakistan. He aspires that his political party, Pakistan Muslim League (N) wins the next election to get a chance to rule Pakistan for another 5-year term. While there seems to be nothing wrong with the wish, a lot depends on the outcome of the Panama Papers case and election manifesto presented by the opposition parties.
Let us first explore the details of the expenditure side of FY18 budget, having a total outlay of Rs5,104 billion. The largest amount of Rs2,341 billion has been allocated for the Public Sector Development Program (PSDP). Other allocations are too paltry i.e. education (Rs91 billion) healthcare (Rs13 billion) and subsides (Rs139 billion). It will not be wrong to say that the bulk of PSDP allocations will be spent on CPEC-related projects, particularly road and bridges. One completely fails to understand, how roads and bridges can usher prosperity. It also seems that education, health care and subsidies are too low on the priority list. One of the possible explanations could be that education and health care are provincial subjects; therefore, the minimal spending by the federal government makes no difference.
Historically, the successive governments in Pakistan have been allocating huge amounts in the budgets under PSDP, but actual spendings remain paltry. This disparity can be attributed to two factors: 1) they use high allocation for propaganda, but when they face scarcity of funds, they are prompt in curtailing developmental expenditures and 2) the governments have been suffering from lack of capacity to undertake mega size projects. This is not a sweeping statement, but hardcore reality. The focus of Mian Sahib’s government has also remained on infrastructure projects, as the country continues to suffer from extensive load shedding, eroding competitiveness of the local manufacturers and falling exports. On top of all more and more people are slipping below the poverty line. It may not be wrong to say that the rich are getting richer and poor are getting poorer.
Now coming to even grimmer side of the budget, revenue collection. At the best the government is likely to generate Rs4,330 billion from taxes and Rs980 billion from non-tax measures. Worst of all is that the government estimates it would succeed in raising Rs50 billion from privatization. It is apprehended that the revenue shortfall would be met through domestic and international borrowing and flotation of Eurobonds. It is also feared that substantial amounts will be borrowed from multilateral financial institutions. This can make debt servicing unsustainable and the vicious circle of borrowing may emerge once again. This may be because of the perception, ‘let us enjoy the party and let debt payment be a headache of the next government’.
In the past multilateral lenders have been more than kind and extending credit to to Pakistan, because of its role in ‘war against terror’. As the turmoil in the Middle East is on the rise, the superpowers may want Pakistan to play the role of ‘peace keeper’ which may open the door for fresh and handsome inflows. This seems credible because the new financial year has not started as yet, but the World Bank, ADB and AFD have already approved over US$630 million loans for various projects. These loans would help the country in two ways: 1) boosting foreign exchange reserves and 2) meeting the shortfall in revenue collection. The added advantage will be the country completing some key infrastructure projects. However, this strategy raises a serious concern of making Pakistan’s foreign policy subservient to the dictate of lenders and that debt servicing becoming unsustainable. Still no fears because Pakistan has the chance to approach the lender of last resort, International Monetary fund (IMF), which has always been kind enough to bail out ‘the darling of super powers’.
After a long time, analysts see focus of government shifting to agriculture from manufacturing. Some analysts say, ‘it is based on the long-term strategy of achieving food security’. Some of the critics say that the ruling junta is paying more attention to facilitate the landlords to earn tax free income. Ironically, income from agriculture has remained tax free in Pakistan. This offers an opportunity to the promoters of industrial units to club a substantial part of their earnings into ‘Income from agriculture, to enjoy tax free income’. They also cite another reason for the shift, lending of over half a trillion rupees to the farmers every year. There is no doubt that the real beneficiaries of this scheme are ‘absentee landlords’. They borrow in the name of agriculture and spend the money on buying expensive cars and properties in the urban areas.
However, ignoring manufacturing sector could have serious repercussions. Pakistan earns nearly 60 percent of foreign exchange from the export of textiles and clothing. This segment has been facing persistent decline due to the eroding competitiveness of local manufacturers of textiles and clothing. Long and unannounced outages of electricity have been one of the contentious reasons for poor capacity utilization and hike in the cost of production.
While oil refineries in the country are operating below optimum capacity utilization, the focus remains on import of POL. This not only erodes the competitiveness of these refineries, but also erodes foreign exchange reserves of the country. Yet another example of neglected industry in urea manufacturers.
The budget lacks measures to put the economy on the fast track. Whatever measures have been taken are not likely to create new productive facilities and employment opportunities. Revenue collection rises only when people spend more. However, the economy is sluggish, new impetus are required to accelerate the GDP growth rate.