The federal budget for 2020-21 has been approved amid protests by the opposition and criticism by economic analysts. Is it really that bad a budget? Not at all. In fact, if anything, it might be incrementally better than the previous years’ budgets in many ways.
For instance, budget 2020-21 can be termed as pro-business as it did not introduce any new taxation measures and instead included a reduction in custom and regulatory duties in a number of areas. In addition, there is no provision for any foreign loan repayment on the account of debt moratorium granted to us by our international lenders. Power and petroleum subsidies have been reduced by more than Rs100 billion, which, if reflected in energy pricing, can very well reduce the financial pressure on the government.
“Despite all the talk of ‘corona budget’, ‘structural reforms’ and an ‘expansionary fiscal policy’, this was truly an ordinary budget but in extraordinary times, falling short of people’s expectations and exhibiting a meek response to the enormous challenge at hand.”
Most importantly, for the very first time, the budget included statements on contingent liabilities, fiscal risks and tax expenditure, setting a new standard of information disclosure and budget transparency. These statements might not be perfect and may need substantial improvements, but nevertheless it is the first time any government has opted for such measures in Pakistan.
The government also restrained from financing its deficit from the State Bank of Pakistan (SBP), albeit under IMF pressure. The development budget does not exhibit the kind of cuts that one would have expected, and last but not the least, the Public Sector Development Programme (PSDP) did not include any unapproved projects, setting a good practice for public investment management.
If all this is true, then what is the fuss really about? Why are people not appreciating government’s efforts?
First and foremost, despite all the talk of ‘corona budget’, ‘structural reforms’ and an ‘expansionary fiscal policy’, this was truly an ordinary budget but in extraordinary times, falling short of people’s expectations and exhibiting a meek response to the enormous challenge at hand.
At a time when the country truly needed a fiscal push through ambitious development spending, the budget ended up sticking to fiscal discipline that is usually required under the International Monetary Fund (IMF) programmes. Perhaps the government could not communicate its domestic priorities to the IMF well. But it is quite clear that in the contest of balancing the preferences, appeasing the IMF won by a wide margin over the goal of stimulating the economy.
“When history would be written, budget 2020-21 would not be criticised for any excesses but for not doing enough to revive the economy in the wake of COVID-19.”
Secondly, and even more importantly, it is an unrealistic budget. The Rs4.9 trillion revenue target for the Federal Board of Revenue (FBR) can never be achieved without new taxation measures and is likely to fall short by at least Rs500-600 billion. The Rs242 billion provincial surplus is also quite unrealistic, especially considering that both Sindh and Balochistan have posted a cumulative deficit of more than Rs100 billion. Notwithstanding the windfall gains on the account of interest rate cut leading to reduced markup payments and an increase in fuel prices resulting in an increase in petroleum levy, the overall revenue receipts will fall short of targets, and when that happens, it will happen at the cost of development expenditure.
Lastly, a crisis generally brings in the appetite for bold and difficult decisions and a crisis of this unprecedented proportion should have led to a paradigm in our priorities. The next few years are going to be tough, leaving little room for fiscal leakages. If there was ever a time to fix the state-owned enterprises and to privatise them, to take decisions on circular debt and power sector reforms, to put a stop on the relentless expansion in government size, to manage the ballooning pension liabilities, or to create a balance between civil and military spending, that time was now. But unfortunately, none of this could be traced in the budget documents.
When history would be written, budget 2020-21 would not be criticised for any excesses but for not doing enough to revive the economy in the wake of COVID-19.