The government promised billions in development spending on Friday is Rs 8.487 trillion deficit but huge budget for the upcoming fiscal year of 2021-22 to maintain an economic recovery from the Covid-19 collapse. The government enhanced development spending in the fiscal budget by above 40 percent to Rs900 billion even as the fiscal deficit, the gap between its revenue and expenditure, is expected to hit 6.3 percent of gross domestic product next year. The budget deficit will be Rs3.99 trillion. It is sizably high over current fiscal’s budgeted deficit of Rs3.437 trillion. The deficit, however, planned to cut by 1.8 percentage points through fiscal adjustments from an estimated gap of about 7.1 percent in the past fiscal year. Likewise, the primary deficit for the fiscal year 2022 has been targeted at 0.7 percent of GDP or Rs360 billion. The economic growth of 4.8 percent is targeted for the fiscal 2021-2022 to fast move fast economy and get more revenues and create jobs. Budget 2021-22 will concentrate on inclusive and strong growth and investment. The economy rose 3.96 percent in the outgoing fiscal year, but GDP figures have left economists surprised and have also raised fresh doubts about the quality of the country’s official economic data reporting. The IMF forecasted Pakistan’s economy is likely to increase only 1.5 percent, while World Bank projected GDP growth of 1.3 percent this year.
The government claimed to presented pro-growth budget but it also took measures in line with the IMF conditions, as the government projected to get budgetary financing of Rs 496 billion for the next fiscal year. The IMF generally provided balance of payment support but this kind of budgetary support forecasted by the official documents shows that Pakistan and the IMF have consensus on macroeconomic structure. The government also estimated to increase petroleum levy to Rs 610 billion in the next budget clearly that the government will have to charge Rs30 per liter levy from start of the July 1, 2021. Consequent Pakistan and the International Monetary Fund are not agreeable, as the Fund is asking for lifting up power tariffs and taxes on personal incomes which Pakistan has labeled as a ‘redline’.
According to Finance Minister Pakistan would surely achieve the revenue targets, but not at the cost of taxing the poor Pakistanis. It seems that Pakistan and the Fund have reached at an agreement, as over Rs500 billion additional taxes will be collected through enforcement and tax measures. Strikingly, the direct taxes have been kept mostly unchanged at Rs2.18 trillion, while indirect taxes have been increased by huge Rs727 billion to Rs3.647 trillion for next year, what the unbiased economists think that it will be finally taken from the common consumer. The government will collect Rs610 billion petroleum development levies, Rs36 billion gas development surcharge, Rs65 billion royalties on natural gas and Rs130 billion Gas Infrastructure Development Cess. This huge deficit would be met through Rs1.246 trillion external financing that include bilateral donors and other commercial borrowing. Further Rs2.492 trillion will be through from domestic sources including national saving schemes, local commercial banks borrowing, while Rs252 billion would be through privatization of public entities during fiscal year 2022.
On expenditure side, the current expenditures will be Rs7.523 trillion. Of this total amount, the interest payment on local and foreign loans will be the biggest expenditure topped by consuming Rs3.06 trillion. Defence expenditure is the second biggest head, for which Rs1.37 trillion have been set apart. The government allocated Rs682 billion as subsidies to wapda and pepco, petroleum, KE, USC, PASSCO etc while for current fiscal it was Rs209 billion. Of this, wapda and pepco will get Rs245 billion against Rs129 billion during this year. Around Rs85 billion will go to Karachi Electric Supply Company and Rs266 billion will be transferred to Power Holding Private Limited and repayments to Independent Power Producers .For the public sector federal government employees, the government announced the addition of an ad-hoc relief of 10 percent in the salaries and pensions of federal government employees. The government also proposed an increase in the orderly allowance from 14,000 to Rs 17,500 per month. Apart from this, the amalgamated allowance of grade 1 to 5 employees was increased from Rs 450 to Rs 900. Likewise to minimize the inflationary pressures, particularly on the laborer’s and workers, the government has increased the minimum wage to Rs 20,000 per month from Rs17, 500/month. Besides, the government has not changed the taxable income slabs salaried class. The government has decided to provide support for 4 to 6 million low-income households, through Interest free business loans (up to Rs5 lakh), Interest free farming loans (up to Rs.2.5 lakh), and Agriculture equipment loans (up to Rs.2 lakh). Further Rs. 100 billion has been allocated for construction of four hydropower dams (Dasu, Diamer, Mohmand, and Neelum Jhelum). For Ehsas program, the funds allocation has been increased by about 24 percent to Rs210 billion.
In the budget there is some sense of good direction. The trouble though is that the economy does continue to show weak basics. In the face of major food price inflation, this is something to be taken earnestly. The budget says that it will put agricultural growth back on the top of its list of importance. The decision to shun increasing taxes on salaried people, resolving withholding taxes, avoiding taxation on the internet as had been proposed and the launch of numerous development projects which would give employment to the many still unemployed after the Covid-19 crisis proposes the government is trying to improve a way to some of the misery of people burdened by the high prices of petrol and other daily needs. The success of the budget for 2021-22 depend on the ability of the government to raise estimated tax revenues of around Rs5.83trillion, up by 24percent from the projected collection of Rs4.69trillion during the outgoing year. The target is ambitious, given the fact that the government has let go significantly large revenues through its tax incentives, and is difficult to achieve if the performance of the FBR in recent years is anything to go by.