ISLAMABAD: As the government is likely to announce increased PSDP, salaries, subsidies and other incentives in the next budget despite the double deficits and acute financial constraints, economists believe that the ruling party is going to trap the next government in financial difficulties by making such announcements for political gains.
“It seems the ruling party has realised that it may not be able to form the next government. This is why the government is going to make a budget highly contrary to economic ground realities, knowing that the next government will not be able to meet the targets set in the new budget,” said an economist.
The government is drafting a populist budget in which it may introduce drastic increases in salaries, pensions, subsidies for farmers, incentives for housing schemes, increased funding for railways, BISP, and other programs of public interests.
According to reliable sources, the government is going to announce another lavish agricultural package for the farmers involving incentives worth billions of rupees. Besides, the PM package for exporters would also be expended in the next budget. The government may also accept demands of All Pakistan Textile Mills Association (APTMA) which included decreases in electricity surcharges, zero rating for electricity for power looms sector, zero rating of packaging material, payment of custom duty drawbacks, pending liabilities of textile policy 2014-19 and 2009-14, uniformity of gas prices etc.
The populist budget is being presented at a time when the officials at the ministry of finance are projecting 6 per cent fiscal deficit against the 3.5 per cent accorded with IMF for its loan program. According to a reliable source, FBR Chairman Tariq Pasha has already informed the government he will not be able to meet the revenue collection target after the announcement of tax amnesty scheme, what the government called it economic reform package. He has also reportedly shown his willingness to step down if the government wanted.
According to renowned economist Nadeemul Haq, there is no moral ground for making such populist budget for the full fiscal year 2019. When a party does not have the political mandate for the next year, it should not be presenting a full year budget. Instead, it should leave the matter to whoever comes to power next, so they can present a budget in light of the aspirations they expressed in their manifesto.
“As I know him, Miftah Ismail, may not give a budget much contrary to ground realities. Since the government has decided to give the 6th budget, whoever holds the position of finance minister, has limited options of giving a reasonable budget. The government is trying to manage the financial affairs for another one month. Next government is to face the huge challenges of double deficits,” he said.
Talking about the challenges of this government ahead of next budget, former chairman FBR Dr Muhammad Irshad said that since no financial institution and country is willing to give a loan to this government, it may introduce further regulatory duties, increase custom duties and take some others steps to increase revenue during the next couple of months. “Even these steps will not cater the losses the revenue sector may face after the government decision to increase exemption on income tax. We can only increase the custom duty by less than 20 per cent as per international rules. Maximum duties are already levied on major import items. What the government can do in the given circumstances is imposing more regulatory duties,” he said.
“Whatever steps have taken by this government during the past few months, show its intention of punishing the next government. The next government will be reversing every step taken by this government. The decision of presenting 6th budget by the outgoing government itself is unrealistic and immoral,” Dr Irshad said.
An economist claims that the interim government may need to go to IMF for a bailout package. In case it avoids approaching IMF, the Pakistani currency may further be devalued to Rs127 to Rs128 against dthe ollar. Contrary to the claims made by the advisor to Prime Minister on Finance and Revenue on Saturday in Washington, the dollar has jumped to over Rs118 on Sunday. According to market sources the dollar in the market was even not available at Rs119 for purchase as the exchangers hold it expecting further devaluation.
“It is very difficult to imagine how the country will pay $ 2.5 billion by July 2018 as repayment of the loan,” said the economist adding that the State Bank of Pakistan (SBP) has already issued Rs 2.3 trillion currency notes to the market during first half of the current financial year.
The actual issue is related to current account deficit which continued to expand, adding to the worries of economic managers as the gap widened 50.6 per cent year-on-year to $12.03 billion in the nine months of the current fiscal year. The SBP has reported that the deficit now stands at over $12 billion during July-March, just shy of last year’s 12-month figure of $12.62 billion. The nine-month deficit for 2016-17 amounted to $7.99 billion.
According to an official at the Ministry of Finance, the government, at a time when no lender is ready to make a financial deal with the outgoing government, is expecting to issue Panda Bond a debt denominated in Renminbi for the first time. The new initiative could be around $1 billion. Besides, the Diaspora Bond, a bond being introduced by National Saving for overseas Pakistanis, may also be launched by early May 2018. The bond is also expected to fetch over $ 100 million by June 2018.