A thrust towards macroeconomic stabilisation?

The budget for 2013-14 disappointed general public expectations with the newly installed PML (N) government – expectation that were focused on relief after a five year steady erosion of the value of the rupee rather than a thrust toward macroeconomic stabilisation. Macro stabilisation targets set in the budget 2013-14 are praiseworthy as they do contain long term solution to the existing economic malaise though the country has witnessed budgeted targets rarely, if ever, achieved.

Dar promised a 2.5 percent reduction in the budget deficit in 2013-14 to be further reduced to 4 percent in three years, an investment to GDP ratio of 15 percent, tax to GDP ratio of 15 percent in five years, settling of 500 billion rupee circular debt in 60 days; and these targets are notwithstanding a 50 percent rise in Federal Public Sector Development Programme (PSDP) – from 388 billion rupees last year to 540 billion rupees. Private sector would be the engine of growth and the government would focus on infrastructure development. Energy, roads and water would receive the largest outlays and circular debt, responsible for over 2 percent GDP loss per year, would be retired in 60 days. This may well explain why domestic permanent debt is budgeted to rise to 292.5 billion rupees in the forthcoming fiscal year in contrast to 87.7 billion rupees in the current year.

Special programmes were budgeted to receive only 5 billion rupees in contrast to the revised disbursement of 46 billion rupees in the current year. However a new expenditure item termed New Development Initiative would receive a whopping 115 billion rupees and it is not clear whether this would be in lieu of the suspension of the Prime Minister’s discretionary fund as per his commitment. However the government has withdrawn fiscal relief package from FGATA/PATA and Khyber Pakhtunkhwa.

What is inexplicable is that tax revenue for 2013-14 is earmarked at 2598 billion rupees which is only 95 billion rupees higher than what was budgeted for the current year. In other words the target does not appear to be that ambitious though it is higher than the revised estimates by 384 billion rupees. And the major reliance on increasing the revenue would be from indirect taxes, to the tune of 51 billion rupees, whose incidence on the rich is greater than on the poor. The Finance Bill increased the number of income tax slabs from 6 to 12 for salaried people, increased the tax on cash withdrawals from 0.2 to 0.3 percent, raised sales tax from 16 to 17 percent, levied a tax of 2 percent on supplies to unregistered individuals, levied a 16 percent federal excise duty on financial services. In addition the non tax revenue is budgeted at 821 billion rupees, significantly higher than the 733 billion rupees budgeted for the current year with only 711.9 billion rupees realised to-date.

Dar mentioned that his government would sell the 3 G licenses, which is likely, and compel Etisalat to pay the remaining 800 million dollars which maybe a challenge as many of the properties are not mutated as originally agreed and many of these are privately owned. Both the items were budgeted during the past three years.

External resources are budgeted to be around 576 billion rupees almost double the revised estimates for the current year at 243 billion rupees. Details of where the money is expected include 1006.075 million rupees under Kerry Luger, and only 1965 million rupees from Saudi Arabia, less than 5820 million rupees received from that country this year for plan and on plan resources laying to rest speculation that Nawaz Sharif’s government would have greater access to Saudi loans/grants. Privatisation is targeted to generate 79,200 million rupees in the current year.

Current expenditure is budgeted to rise to 2829 billion rupees, around 110 billion rupees higher than the revised estimates for the current year, in spite of an envisaged reduction of 124 billion rupees in subsidies from the current year’s disbursement. The usual culprits for a rise in expenditure are interest payments, by 124 billion rupees, and defence by 57 billion rupees.

The Economic Survey 2012-13 indicted that inflationary impact on upper middle and middle income was higher than on the rich, and the budget would provide no immediate relief to the most affected group. However Dar emphasised that the government was focused on pro-poor programmes and announced a 1200 rupee (instead of the 1000 rupee per month) stipend for the poor under what he referred in his speech as the Income Support Fund, commonly known as Benazir Income Support Programme in 2013-14 budget documents as well, by maintaining that the programme was conceived by him during the short span of time he was Finance Minister after the 2008 elections. The budget envisages 75 billion rupees for BISP in the current year instead of the 58 billion rupees spent in the revised estimates of the current year. Benazir Tractor Scheme was not budgeted and though the budget for the current year had earmarked 2 billion rupees for this it was never disbursed.

Subsidies would be targeted, Dar promised but the page providing details on subsidies was blanked out in the budget documents. However total subsidies are budgeted at 240.4 billion rupees in the forthcoming fiscal year as opposed to the revised estimates of 367.4 billion rupees. Dar noted that state owned entities would be financially restructured, privatised if possible or else dealt with through appointment of professional management on merit however inexplicably the budget incorporates a subsidy of 30 billion rupees for TCP for import of urea fertiliser, 20 billion rupees more than in the revised estimates of the current year. No amount was kept aside for citizen damage compensation even though 10 billion rupees was budgeted and disbursed in the current year. In the event of a natural disaster or indeed a law and order crisis the federal government would have to divert funds away from some other expenditure item. Dar criticised the state of the economy but added that the budget for fiscal year 2013-14 is part of the Medium Term Expenditure Framework approved by the PPP-led coalition cabinet.