Budget: focus on growth

Announcing this budget in parliament was the easy part, despite the resentment with which the speech must have been delivered. Keeping the promises made there will be the real challenge. The budget is first and foremost aimed at pleasing the business community, with a series of tax and duty cuts so sweeping and sweeping it’s hard to remember when so much was given to the country’s business and industry leaders. . But they are not the only ones. For wage earners in this country, the budget provided much-needed respite by raising the minimum wage equal to nearly 20 percent. Employees can rejoice in the 10% increase in civil servants’ pay, as their own increases often evolve accordingly. Defense spending rose by a meager 6%, with most of the nearly 18% increase in current spending, or 1.18 trillion rupees, going to civilian leaders, though spending by the division of the defense in the development budget almost tripled, reaching nearly 2 rupees. one thousand billion. The grants have also more than tripled from their budgeted amount of Rs 208 billion last year (the actual amount spent in the current fiscal year has climbed to Rs 430 billion). For the next fiscal year, they are programmed at 682 billion rupees, 87% of which is for the electricity sector alone, precisely the area in which the government had committed to the Fund to reduce subsidies.

Having made these commitments with the Pakistani people, the government now faces the challenge of securing the assent of its creditors, primarily the IMF. And the Fund will first of all ask itself how it intends to pay for all this. The budget foresees an increase of nearly Rs.5 trillion in external resource requirements for next year, an increase of more than 20% from revised estimates for the current fiscal year, most of which will come from loans. external whose cost is estimated at more than 1.2 rupees. trillion after repayments. Last year they budgeted for Rs 810 billion in net foreign loans and ended up demanding over Rs 1.3 trillion. Much now depends on their ability to respect their budget or not. In addition, the budget will require Rs866 billion in additional RBF revenue, of which Rs727 billion is expected to come from indirect taxes, mainly sales tax. Beyond taxes, there is an increase in the collection of the oil tax, equal to 160 billion rupees, and a massive increase in the tax on the development of gas infrastructure which goes from 15 billion rupees per year. last at 130 billion rupees next year. The presumed provincial contribution to federal resources has also more than doubled, from Rs 242 billion last year to Rs 570 billion next year.

With a combination of tax cuts and high public spending, the government is now ready to give new impetus to their growth. The task that awaits them now is to convince the IMF that these expenditures are necessary and that they have a credible plan to mobilize the necessary resources for this purpose. The budget deficit target for next year is 6.3% of GDP, higher than the 5.1% committed to the fund, despite the fact that nominal GDP for next year is expected to increase by more than 1,100 billion rupees compared to growth forecasts. by the Fund. The difference between the two projections for the deficit is Rs541 billion, which is not a small sum. Even the overall revenue target is Rs 134 billion lower than the one already committed to the Fund.

The Fund will require two things above all: a credible fiscal plan from which the additional revenues are supposed to come, and a credible plan to curb the accumulation of circulating debt. From the finance minister’s remarks to Parliament, it appears that much of the revenue plan will rely on administrative measures, such as a wide expansion of point-of-sale arrangements to monitor retail cash transactions as well. than to get retailers into the tax net. Such fiscal expansion is absolutely necessary in Pakistan, but it should be borne in mind that our own history teaches us that such measures do not generate much income in the short term. Other than that, there is some confidence in the sales tax, although the quantities are not shown in the budget documents. And some of the natural income growth will come only from growth and inflation.

Given the resources required, this budget can credibly stimulate growth to meet or exceed the government’s target of 4.8%. But without the external support and remittances maintaining at least the levels they hit during this fiscal year, this will likely put pressure on the government to correct the mid-course course by resorting to revenue sources at the bottom. high and rapid returns such as taxes and levies on oil, gas and power, which could in turn dampen growth momentum. The budget envisions a shift in domestic debt from floating debt (maturity of one year or less) to permanent debt (long maturity periods, like Pakistani investment bonds), but this will also be difficult to achieve. if real interest rates remain negative for some time. extended period.

The growth momentum of the economy is expected to continue, and possibly accelerate, in the near future. But by unveiling this budget, the government has made the important bet that the resulting growth will help to finance itself. His predecessors made the same bet. Their bet didn’t pay off, at least not for very long. Now let’s wait and see how it goes this time around.

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