Budget for Fiscal year 2023 / 2024

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Pakistan govt’s performance and accountability​

Faisal Hafeez

Business organisations follow the process of strategic planning for setting goals. The process involves conducting a situation analysis to assess the internal and external environment in which the organisation operates, and goals are finalised after the due process. Budget is then prepared to identify resources required for the spending needs to achieve these goals.

Then these objectives are assigned, with the identification of specific responsibilities, so that accountability is possible.

The importance of a well-thought-out strategic plan is greater in the case of a country than for any organisation, due to its significant impact on the lives of millions.

Therefore, the government has all the human and other resources it needs to work on the planning process and to ensure a swift execution of the plan.

Despite all this, there are sharp deviations in actual figures vs budget in FY23, which casts doubt on the process.

Most importantly, the 5% GDP growth objective set at the beginning of the year was totally missed.

Assuming that the budget was prepared after considering all the limitations that existed while preparing the plan in 2022, the deviations in results should only be on account of the unknown subsequent developments.

The devastating floods at the beginning of FY23 could be considered as one of the unforeseeable factors at the time of planning.

However, the 1.5% growth reported in the agriculture sector, by the government, indicates a recovery.

In addition, the prices of commodities dropped 13% in the international markets as compared with Jun 2022. Despite these positive developments, inflation managed to go out of control vs the planned 11%.

Apart from the floods, it is difficult to think of any other significant unforeseen event.

The limitation of the funding sources available and the conditions attached to those was never unknown since the country was already under an IMF programme and it was in an advanced stage to reach a staff level agreement at the time of budget preparation in 2022.

If the government was following the plan it prepared for FY23, and the unknown event that happened after the year-end had limited impact, it is difficult to justify a 40% fall in PKR value against USD and a 2.9% contraction in the industrial sector during the year.

The significant variation between actual achievements and planned goals in FY23 cast significant doubt on the credibility of the budget process and its execution.

It is important to identify if there were flaws in the budget or errors in the execution.

An assessment is necessary for fixing the responsibility for improvement in the future.

 

[ghazi52]

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Another ‘unimaginative’ budget fuelled by debt​

Plans to arrange foreign currency, as envisaged in the budget, seem to be a fantasy at best.

Ammar H Khan
June 9, 2023

The budget announced for the upcoming fiscal year of 2023-24 is not just unimaginative, it has the unique distinction of also being pro-incompetence.

At a time when there was a dire need to reduce the fiscal deficit and bring inflation under control, the budget has effectively been designed to attain moderate-to-low growth, largely funded by debt.

The total outlay for the budget stands at Rs14.46 trillion, more than half of which will effectively be utilised to service debt. Digging deeper, however, it is clear that almost 80 per cent of all taxes that are expected to be collected will be used to pay mark-up payments on existing debt. If net federal revenue is considered, almost 97pc of the same would be used to fund mark-up payments, and debt servicing requirements.

The budget also envisages a marked increase in the allocation for pensions, which now stands at Rs761 billion, while defence expenditure has been increased to Rs1.8 trillion. A potential increase in inflation may lead to further revision in these estimates, resulting in higher spend, and eventually a higher fiscal deficit.

An ambitious Public Sector Development Programme (PSDP) of Rs950 billion has also been announced. However, it remains to be seen how much of it actually materialises given fiscal constraints.

Old debts and new debts​

In essence, all taxes that the sovereign will collect will be used to service debt, while the rest of the government’s expenses will be covered through additional debt. As the sovereign takes on additional debt in an environment where fiscal space is already scarce, there is a potential of increasing interest rates.

To make matters worse, the imposition of 0.6pc withholding tax on cash withdrawals will lead to a potential exodus of deposits from the formal financial system, resulting in an increase in currency in circulation. As the quantum of deposits from the formal financial system reduces, the availability of capital that would be borrowed by the government would become more scarce, resulting in potentially higher interest rates. With the increase in currency in circulation, and the central bank continuing to print more money, it will fuel inflation further.

It is also essential to consider that an increase in wages in the budget will trigger a price-wage spiral, resulting in higher wages across the board, which will further fuel inflation.

Any external shocks related to commodity prices can further exacerbate inflationary pressures, making it difficult to bring the same under control. The budget documents assume an inflation rate of 21pc, which is unlikely to be met considering the inflationary and debt-fuelled nature of the budget.

The additional taxes to be levied in lieu of the super tax will weigh heavily on the already stressed formal sector, which has slumped in recent months, as demonstrated by a contraction in Large Scale Manufacturing (LSM). Imposing additional taxes will further hinder investment, growth and job creation, leading to increased unemployment in an already stressed stag flationary environment.

Over taxation ultimately results in prices being passed on to the final consumer, resulting in lower sales volumes, lower profitability and ultimately, missed tax collection targets. The formal economy continues to contract, and will be squeezed further due to imposition of additional taxes, while severely constraining any employment growth.

Tax net​

This budget contributed little to the widening of the tax net. The retail, wholesale, and agricultural segment largely remain untaxed, and provide an avenue for currency in circulation to be parked, thereby triggering inflation.

Pakistan has the fastest population growth rate in the world, even higher than the projected economic growth rate. Real incomes for the last five years have stayed stagnant — in such a scenario, the current budget will further strain real incomes, as expected inflation will reduce real disposable income.

The inability to provide the necessary foreign currency liquidity has already caused many factories to close, leading to significant job losses. Plans to arrange foreign currency, as envisaged in the budget, seem to be a fantasy at best, considering the high risk associated with the sovereign at this stage. The inability to close the IMF programme and accelerating availability of foreign currency liquidity will continue to exert pressure on the country’s growth prospects, and make stagflation worse.

Little regard to fiscal discipline​

The context for the current budget was that of a country going through a polycrisis, barely averting an external default, and squeezed by stagflation. A responsible growth strategy would have curtailed fiscal deficit through the expansion of the tax net, while incentivising private sector investment to drive growth, and job creation.

What has been proposed is essentially yet another budget fuelled by debt at historically high interest rates, with little regard given to fiscal discipline.

The inability to understand the unintended consequences of policy actions may push the country towards a potential restructuring of its external and domestic debt, or a potential hyper-inflationary episode.

In both scenarios, the people of the country suffer the most while the game of political musical chairs continues — the music for the people of the country stopped a long time back.

 

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Ishaq Dar’s spin on debt rescheduling has further damaged his credibility​

This is not the time to spin stories.

Restructuring debt?​

Editorial
June 14, 2023

IF Finance Minister Ishaq Dar’s ‘revelation’ that Pakistan was contemplating bilateral debt ‘reprofiling’ in order to extend the repayment period came as a surprise, the State Bank governor’s assertion that no such plan was under consideration was a bigger shock to the markets.

The SBP chief not only expressed his ignorance about such a scheme, he also contended that the finance ministry was unaware of it, let alone working on one. The central bank, he told financial market analysts on Monday, “is not even aware about the restructuring of external debt. This means the government has not worked out such a plan”.

He made these remarks shortly after the announcement of the monetary policy that left interest rates unchanged at 21pc. If anything, it raises questions about Mr Dar’s reasons for making such a pronouncement — and repeating it during his post-budget presser.

Was he sending a message to the IMF? Maybe, he wanted to calm the markets that are jittery because of the political turmoil and heavy external repayment concerns in case the IMF programme remains suspended. Or was he simply trying to distract public attention from his fiscally irresponsible budget? Whatever the reason, Mr Dar has done further damage to his credibility.

Mr Dar’s spin on debt rescheduling has left the markets baffled because of the government’s lack of strategy to tackle debt payment challenges with foreign exchange reserves projected to fall to $2.6bn after the payment of $900m to creditors by the end of this month, provided China rolls over its $2.3bn deposits at the same time.

With external vulnerabilities increasing by the day, it is time Mr Dar came up with a credible plan to deal with the liquidity issue, in case the IMF rejects the prime minister’s request to sign off on the ninth review and release the stuck-up tranche of $1.2bn before the programme ends on June 30.

This is not the time to spin stories. Pakistan’s financial condition has become so bad that the monetary policy has lost its ability to control inflation, which is soaring. With the government the only borrower in the market to cover its massive fiscal deficit no matter what the cost, it no longer makes a difference if the central bank raises interest rates or keeps them steady.

Reprofiling the bilateral debt can provide some breathing space and reduce Pakistan’s foreign payment requirements of $23bn in the next fiscal year. The government cannot pull this off without a serious roadmap to move forward and without the IMF’s help.

The non-professional attitude of the minister on an existential threat facing the nation will only complicate an already complex situation. The government must take steps to repair its broken relations with the IMF and draw up a plan for bilateral debt reprofiling.

 

[maithil]

Why a govt with 2 months of tenure left, is giving budget for whole year? Next govt should have the flexibility to implement their agenda from first year itself. Why burden them with this ?

 

[ghazi52]

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In tit-for-tat response, Pakistan says FY24 budget ‘was never a part of IMF 9th review’​

• Govt says it is committed to IMF programme, wants to at least complete pending review

BR
June 16, 2023

In a detailed response to the International Monetary Fund’s (IMF) concerns, the Ministry of Finance said on Friday that the budget for fiscal year 2023-24 was “never a part of the ninth review”, a complete deviation from earlier reports that Pakistan was required to take the Washington-based lender onboard for the new taxation measures announced last week.

“Though the Budget FY24 was never a part of the 9th Review, however, in line with PM’s commitment to the MD IMF, we shared the Budget numbers with the IMF Mission,” said the Finance Division in a lengthy statement.

“And we are continuously engaged with them even on the Budget.”

 

[ghazi52]

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Rs462b K-P budget seeks to promote strict austerity​

Caretaker govt not to initiate any uplift scheme; bans recruitment; purchase of physical assets

SHAHID HAMEED/Ehtisham Bashir/Mohammad Haroon
June 21, 2023

The caretaker government of Khyber-Pakhtunkhwa (K-P) presented an austerity budget of Rs462 billion for the next 123 days, with a view to maintaining the current level of taxes until the new elected government took over in the province.

The budget for July 1-October 31, 2023 period, was unveiled at a joint press conference by Himayatullah Khan, adviser to the chief minister on finance, and Information Minister Firoz Kakakhil and Planning Minister Hamid Shah in Peshawar.

The budget was approved by the provincial cabinet in a special meeting, Himayatullah Khan told the press conference. He added the provincial expenditure for the first four months of the next fiscal year had been estimated at Rs462.426 billion.

“Government expenditure has been cut by another 25%,” the adviser said. “No new tax has been imposed in the budget, while the tax levied during the current financial year will remain in force at the same rate,” he added.

Out of the total budget outlay, the adviser said, Rs350.041 billion had been allocated for the current expenditure, including Rs40.543 billion for the merged districts of former Federally-Administered Tribal Areas (Fata) and Rs309.498 billion for the rest.

On the revenue side, the government expected to receive Rs871 billion from the Centre in the next fiscal year, which include Rs84 billion in terms of hydel profit and arrears; Rs90 billion for the war against terrorism, and Rs85 billion in its share in taxes and others.

Besides, the provincial government also expected to receive Rs93 billion from foreign resources for the purpose of development works during the next financial year, the finance adviser told the reporters.

In terms of the annual development Plan (ADP), Rs112.385 billion had been allocated, including Rs20.263 billion for the merged districts and R43.333 billion for other districts, the provincial finance adviser told reporters.

In line with the federal budget, the province also announced 35% ad hoc relief in the salaries of provincial employees from grade 1 to 16 and 30% ad hoc relief for from grade 17 to 22 officers. An increase of 17.5% in the pension was also approved.

Pays and pensions increase amounted to Rs5 billion. “We have increased the salaries and pensions of the government employees despite a lack of resources and other financial difficulties,” Khan said.

Alongside the pay raise, the budget also increased the traveling allowance and deputation allowance by 50%; doubled the special conveyance allowance for disabled employees and the secretariat performance allowance.

The main highlight of the budget is the strict austerity measures. The adviser said that all posts lying vacant for the past three years would be abolished; and there would be a total ban on new development projects.

Himayatullah Khan said that the matter of blocking the implementation of the promotion given to 130,000 teachers by the previous Pakistan Tehreek-e-Insaf (PTI) government in the province had been referred to the relevant committee.

Besides, the government also banned the purchase of physical assets, new vehicles and renovation of government offices and residences; participation in seminars abroad on government expenses; and medical treatment abroad on the government expenses.

The budget also sought to streamline the necessary payments and release of funds during the next four months. Khan said that only 10% of the allocated funds would be released for ongoing development schemes.

“We have managed the budget of the current financial year under very difficult circumstances,” Khan said. “We did not take any loan or overdraft from the State Bank [of Pakistan] from March to June,” he added.

“We have requested 100 MMFC of additional gas from the Centre so that we can supply gas to our industries,” he said, adding that imposition of federal excise duty (FED) on the petroleum reserves found in the province had also been demanded of the Centre.

 

[ghazi52]

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Rs. 20 Billion for Health, Rs. 30 Billion on Education & Rs. 1804 Billion for Defense, 2023-2024 Budget

The finance minister revealed that the allocation for national defense in the current fiscal year has been set at 18.4 trillion rupees, showing an increase compared to the previous year’s defense budget of 15.23 trillion rupees.

This demonstrates the government’s commitment to strengthening the country’s defense capabilities. Additionally, the budget includes a substantial allocation of 30 billion rupees for education and higher education, emphasizing the importance of investing in the future generations.

 

[epebble]

Rs. 20 Billion for Health, Rs. 30 Billion on Education & Rs. 1804 Billion for Defense, 2023-2024 Budget

Is this real? Health and education outlays are 3% of defense. If defense is, say, 5% of GDP, that would put health and education outlays at 0.15% of GDP. That would be probably more niggardly than even sub-Saharan African countries. We probably spend more than 25% of GDP on that in U.S.

 

[ghazi52]

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Pharmaceutical sector granted major tax relief​

Sohail Sarfraz
July 10, 2023

ISLAMABAD: The government has provided major tax relief to the pharmaceutical sector by allowing the reduced rate of one percent sales tax on the import of all kinds of raw materials used for the basic manufacture of pharmaceutical active ingredients and pharmaceutical products from July 1, 2023.

Previously, reduced rate of one percent sales tax was not applicable on the import of all kinds of raw materials of the pharmaceutical industry. Similarly, minimum rate of one percent sales tax was also not applicable on pharma raw materials having multiple usages. Now, the same inputs having multiple usages can be imported at a reduced rate of only one percent sales tax.

 

[Asian.Century]