The budget of Ls: Explained by economists

KARACHI: It’s that time of the year when nearly everyone you know has something to say about the economic and financial position of Pakistan’s economy. Keeping that in mind, Profit decided to talk to some economic experts to see what they have to say about this year’s budget.

“The art of preparing a federal budget in Pakistan is taking care of four “D’s”: debt servicing, defence, day-to-day administration and development. This is taken care of through federal revenue which is topped up through domestic and external borrowing,” notes Abid Suleri, Executive Director at SDPI.

“However, this year the budget, which is also being termed as the corona budget, has more dimensions to it. I’m talking about the four Ls: lives, livelihoods, locusts, and lockdown. The one-word summary of these Ls provided by the economic survey of Pakistan’s “Covid-19 Advent and Impact Assessment” section is “losses”. This is the loss of jobs, loss of revenue, loss of GDP growth, and unfortunately loss of precious lives.

Suleri says the government will be highly dependent on external financing. A problem of unprecedented nature requires an out of the box approach. “Amidst all this, the growth mantra should be abandoned, at least for the next 6 months, and a clear stance should have been taken that budget is presented to support lives and businesses.”

He feels that the budget document will be revised in the coming months — Covid-19 and locust impacts have to unfold. The targets would change as the pandemic and locust change.

While budgets are a highly politicized affair, there is always something that is worth the appreciation.

Adil Nakhoda, Economist & Research Fellow at IBA CBER comments, “Razzaq Dawood’s push for lower dependence on custom duties is a positive shift. This now needs to be realized by ensuring across the board lowering of tariffs.”

He adds, “While the current account deficit may not be seen as a hot topic the way it was in prior budgets most likely due to the fall in imports, we cannot forget that dollar inflows are still much needed.”

Commenting on the importance of international trade, he stated, “Focus must shift towards propping up the export sector as we recover from the corona shock. Restoration of the zero-rated facility is debatable as it was removed with a purpose to diversify exports as well as to ensure genuine export sales were reported.”

Sajid Amin Javed, a Research Fellow & Head of Policy Solutions Lab at the SDPI, however, was critical of the budget. He says, “The government seems to have confused protecting the economy and businesses in this budget, as they did protect people from the Covid-19. The budget2021 is as efficient for economic recovery as was the confused lockdown we did to control the spread of the virus.”

While a number of individuals view the budget to be strongly impacted by corona, Uzair Younus, a non Resident Senior Fellow at the Atlantic Council in Washington D.C. opined, “Covid-19 does not seem to have had an impact on this budget because they have basically ignored the fact that at this time, the economy needs stimulus.”

One of the demerits of the budget for him is the lack of stimulus for the economy. “This budget is more of the same and is devoid of any significant measures to boost aggregate demand. The fact is that Pakistan is facing perhaps the most serious economic crisis since independence and one expected bolder measures to kickstart the economy. The tax target is ambitious and unachievable and as the revenue slips, disbursements to PSDP will be slowed.”

However, Younus also views that doing away with tariffs was much needed to reduce distortions in the market as one of the positives to come out of the budget.

Naveed Iftikhar, Economist & Academic who has worked as Governance Specialist at the Ministry of Finance, called the budget a “traditional budget”. He adds, “We have been formulating such budgets for many decades. The revenue and development expenditures targets are not going to meet.”

He was also critical of the housing subsidy worth Rs31 billion. “I think we should not build housing through subsidies. There is a need to introduce regulatory and financing reforms to increase the supply of housing. The portion of grants and subsidies is around 1 trillion. I think this is time to bring more transparency and effectiveness in this part of the budget.”

The consensus, however, remains on the unrealistic nature of the budget.

“The revenue target of FBR set in the budget is unrealistic keeping in view the collection of outgoing FY (Rs3.9 trillion) and impacts of Covid-19 pandemic, notes Dr Viqar Ahmed, Deputy Executive Director of SDPI.

While this is what the economists think, in terms of the impact on business, Nauman Lakhani, Country Manager of Dun & Bradstreet, feels that there is a good chance of recovery.

“Given the pandemic, Pakistan would in the same boat as similar economies. If businesses go back to normal in the coming quarter there are good chances of recovery and higher growth in the last two quarters of the fiscal year.”

However, he says the tax targets will be a challenge due to “the economic challenges of Covid-19 and the fact that the government has not gone for more additional tax collection measures.”

He adds, “Revenue from nontax avenues would be a wait and see. It seems clear the direction that the government has set on which it aimed to do in 2018. There seems a high chance of fiscal deficit based on the current targets set both for income vs expenditure.”