LAHORE: A research organization has claimed that Pakistan’s 2018-19 budget was prepared to suit next elections. According to an observation made by Institute for Policy Reforms (IPR) “This is a budget with some realistic, some fanciful numbers, and more than a dash of electioneering.”
According to the review “The government takes credit for the revival of GDP growth rates, however, several developments, such as recovery of world economies from the 2008 financial crisis, low energy prices, growth in world trade, improved security in Pakistan, and large-scale investment in infrastructure from China helped Pakistan’s economic growth.
Yet, despite these favorable developments, the government has not placed the economy on a sustained growth path.” The economy’s fundamentals are weak, especially its external sector with a runaway current account deficit.
According to the review issued by IPR the government so far has no response on how it will manage the external account. Its estimate that imports will grow by just 4.8 percent is unrealistic. For FY19, government forecasts a growth rate of 6.2 percent, meanwhile, the fiscal deficit is targeted at 4.9 percent of GDP.
IPR in its observation added that the government has clearly made a policy transition from stability to growth; this would change if the vulnerable external sector makes Pakistan knock on the doors of the IMF again.
With unprecedented growth in revenue in the last three years, FBR’s performance has helped limit budget deficit. Revenue is targeted to grow by a further 12.7 percent in FY19, despite wide-scale tax relief. The budget estimates 114 percent increase in non-tax revenues. “We have to see if this is because of higher energy prices or the government plans to increase the rate of petroleum levy,” it added.
The report claimed that other aspects would negatively affect the deficit, read the review while adding, the budget estimates a provincial surplus of Rs285 billion in FY19, however, this is very unlikely to happen. Actuals for several expenditure heads will exceed budgeted estimates. These include the minor increase in current expenditure, especially with the increase in pay and pension, and need for PSEs subsidy.
In fact, virtual closure of Pakistan Steel Mills (PSM) and continued losses in Pakistan International Airlines (PIA) are avoidable. Power sector subsidy is still high. Line losses and less recovery of bills have not improved in five years. Each new unit of power generated needs the subsidy.
The budget for markup payment seems below need, as central government debt has increased rapidly and the share of high-cost commercial debt has increased in borrowing, the review noted. It added, all these will stress the fiscal framework and make it difficult to stay within the deficit target.
In any case, the deficit does not include over Rs900 billion in circular debt which is a liability that must be paid.