- It was tough, but the budget had some good things too
By: Muhammad Zahid Rifat
There is no denying the that the federal budget for financial year 2020-21, which has already commenced on July 1 was formulated in the very unusual and difficult circumstances and conditions caused by the covid-19 pandemic which affected Pakistan as it did to countries around the world one after the other.
Everything was going in the right direction, following the bold and necessary policy decisions of the Federal Government, economic recovery was on an upward trajectory, and there were encouraging positive signs of the stabilization of the national economy, which had been in the bad shape for some time. This was till March 2020, the third quarter of the outgoing financial year 2019-20. All this can be affirmed by the appreciable improvement in major economic indicators of the country during the first nine months of FY 2019.
The current account deficit had reduced by 73 pe cent from $10 billion to $3 billion; the trade deficit had decreased by 31 percent from $21 billion to $15 billion; the fiscal deficit had reduced from 5 percent to 3.8 percent of the GDP; a primary surplus of 0.4 % of the GDP was achieved for the first time in 10 years; Federal Board of Revenue (FBR) revenue collection had increased by 17 per cent and the federal government was on the track to achieve the revised revenue generation target of Rs 4800 billion; Non-tax revenue had increased by as much as 134 per cent against the annual target of Rs 1161 billion; remittances back home from overseas Pakistanis had increased to $ 17 billion; Foreign Direct Investment (FDI) had almost been doubled from $ 0.9 billion to $ 2.15 billion.
The new federal budget for financial year 2020-21, the second regular budget presentation by the PTI government, has undoubtedly been a crisis budget prepared under very unusual and difficult circumstances requiring a well-thought philosophy and approach by all concerned
Furthermore, debt management had improved by shifting 74 percent of the domestic debt portfolio to long term, resulting in reduction of0 domestic borrowing rates from 14 percent to 10 percent besides a saving of Rs 240 billion. Due to the reforms introduced by the federal government , an Extended Fund Facility (EFF) of $ 6 billion was approved by the International Monetary Fund (IMF); Only in December 2019, Bloomberg had ranked the Pakistan Stock Exchange as one of the top performing markets of the world; Moody’s rating was upgraded from B3-Negative to B3-Positive; Pakistan’s “Ease of Doing Business” ranking had improved, and; Significant progress was made on as many as 27 actionable items included in the Financial Action Task Force (FATF) action plan.
And then came the attack of the covid-19 pandemic which has turned out to be a very severe global economic threat , having the potential of destabilizing the international economic system. Pakistan was no exception to the general disorder, as the corona virus adversely impacted the economy of the country, forcing the economic team managers to do fresh thinking and reset the targets for financial year 2020-21. The immediate economic repercussions of covid-19 for Pakistan during FY 2019-2020 are briefly indicated:
- The industry and the retail businesses all over Pakistan have been badly affected.
- Economic growth has been reduced by Rs 3 trillion bringing down the GDP growth projection from 3.3 percent to -0.4 percent.
- Projection of overall budget deficit has been revised upward from 7.1percent to 9.1 percent of GDP.
- FBR revenue loss has been projected at Rs 900 billion.
- Non-tax revenue of the federal government has been reduced by Rs 102 billion.
- Exports and remittances back home from Overseas Pakistanis have been badly
- Unemployment and poverty have increased.
- Large scale manufacturing and Foreign Direct Investment (FDI) have declined.
- Domestic tourism in Pakistan has stalled.
The new federal budget for financial year 2020-21, the second regular budget presentation by the PTI government, has undoubtedly been a crisis budget prepared under very unusual and difficult circumstances requiring a well-thought philosophy and approach by all concerned.
The federal government has positively stood up to the socio-economic challenge by reaching out to the vulnerable segments of the society and business community to neutralize the negative impact of lockdown and unemployment. The federal government has also given relief to the farmers community and daily wage earners, incentives have been provided to the construction sector for stimulating the national economy. and the State Bank of Pakistan has also introduced a number of initiatives for businesses to neutralize the negative impact of closure owing to persisting pandemic COVID-19.
Following are the positive aspects and main features of the new federal budget philosophy briefly speaking:
1.Striking a balance between Corona expenditure and fiscal deficit.
2.Keeping the primary balance at sustainable level.
- Protection of social spending under the Ehsaas Programme to support the vulnerable segments of the society.
- Resource mobilization without unnecessary changes in tax structure.
- Successful continuation of the IMF programme.
- Carrying forward of the Stimulus Package of more than Rs 1200 billion.
- Keeping the development budget at an adequate level to stimulate economic growth of the country.
- Defence and internal security of the country has been given due importance in the prevailing circumstances and persisting hostile activities by India.
- Housing initiatives including Naya Pakistan Housing project have been funded.
- Funding for special areas, that is, erstwhile FATA (since merged in Khyber Pakhtunkhwa) , Azad Jammu and Kashmir, Gilgit-Baltistan, has also been ensured for their development.
- The special initiatives led by the Prime Minister like Kamyab Jawan , Sehat Card, Billion Trees Tsunami, and so on, have also been protected.
- Austerity and rationalization of expenditures will be observed.
13.The sSubsidy regime has been rationalized to provide targeted subsidy to the deserving segments of the society.
- The National Finance Commission (NFC) Award is to be revisited. More, the provinces will be asked to fulfill the funding commitment made at the time of the merger of erstwhile FATA.