Let’s analyze the impact of the Federal Budget 2018-19 announced a couple of weeks ago by the couple-of-week old Finance Minister, Miftah Ismail. Should the incumbent Finance Minister have been happy by talking about the $1 billion commercial loan received from a Chinese bank right after the announcement of the budget? If it is a good sign and if it is going to help us manage the balance of payment conundrums at least for a while, where is the sense prevailing in the dazzling minds of the people at the helm of affairs and what have they been doing over the period of last five years for the stability in the economy? Having announced the budget, the couple-of-week old Finance Minister did claim during an event that he was leaving the goods in order by May 2018 and if the caretaker set-up keeps things normal by June, there would be no need to go to the IMF. The prevalent assumption is that Pakistan’s economy is not in good shape and the IMF may be the point of contact to tackle the balance of payment issues to be faced sooner rather than later.
Looking at the figures presented during the budget speech, one may assume that though the incumbent set-up tried to please almost everyone, yet it could not due to lack to proper home work in this regard. Let’s look at just one thing, which might help us fathom that there does not seem any work in terms of the forthcoming surge in the oil prices in the global arena.
The oil prices, subdued since June 2014, have witnessed an upsurge and are hovering over $76 per barrel. This is evident that Pakistan may have to pay over $15 billion for the oil import in the next fiscal year. Does the budget for the next fiscal speak of it? Did the couple-of-week old Finance Minister emphasize it and are there any provisions in this regard in the budget for the next fiscal? Well, we imagine and hope and this is what we have been witnessing over the last five years. The government expects obtaining around $10 billion next year: the break up is $3 billion through commercial loans, $2.5 billion sovereign bonds and the rest would come from the Asian Development Bank, China and the Islamic Development Bank. We presume and presume and our budget is contingent on presumptions. If we don’t get the presumed and promised amount, we will go hungry since there is no other provision.
Our imports may touch around $60 billion and our exports may barely move up to $22 billion, which might leave us with a trade deficit of around $38 billion. In case our trade deficit is around $38 billion, we would definitely have to approach to the IMF. Many questions arise about the balance of payment in this scenario. Our current account deficit may go as high as $15 billion. There are not any concrete measures to tackle these issues in the Federal Budget 2018-19.
There are lots of hopes on remittances which do plug the holes of the twin deficits, however, there is one concern about the remittances as well apart from the economic growth of Saudi Arabia, which contributes around $6 billion per annum. In case the budget presented becomes the finance bill barring non-filers from buying property exceeding the value of Rs4 million, remittance may get the brunt. There is perception that major chunk of remittances is invested in property and these individuals pay tax in the country of their employment. It is also the talk of the town that this may deter the overseas Pakistanis from sending money to Pakistan. If it happens, God forbid, the situation would exacerbate.
Budget deficit is a major unaddressed issue for decades. It is unaddressed since no concrete steps were taken except the window dressing. The debt burden has exceeded $70 billion dollars and expedited over the period of last five years. The couple-of-week old Finance Minister seemed quite exhilarating by announcing that tax rates have been reduced to have more individuals into the tax net since around one million out of 207 million of the total population pay tax. The tax relief to the salaried individuals, barring the non-filers from purchasing cars and investing in real estate, giving the incentives for investment in the capital market, reduction in the super tax etc. may help to some extent.
However, no one seems to be upbeat. The Federal Board of Revenue may be able to collect around Rs4,000 billion revenue in the current fiscal and over Rs4.45 trillion in the next fiscal, however, the budget deficit conundrums are perennial and would never be addressed by these measures. Out of the box solution by the experts need to be thought since it has become sine qua non now.