PHOTO: FILE
Headed by Prime Minister Imran Khan, the NEC, a constitutional body mandated to approve the country’s macroeconomic framework, approved just 2.1% gross domestic product (GDP) growth rate for fiscal year 2020-21.
The savings and investment targets for the next fiscal year were also kept at almost outgoing year’s level, suggesting that the country’s economy will not be out of the woods in the next fiscal year. Even the achievement of 2.1% growth target is stated to be hinged upon “the control of the Covid-19 pandemic”, according to official documents.
The NEC approved Rs1.3 trillion for combined development spending by the Centre and the provincial governments – a figure that has lost its sanctity due to vast deviations between approved and actual spending by federal and provincial governments.
One reason for the huge deviations is the Federal Board of Revenue’s (FBR) failure to achieve its tax collection targets. The development allocations by the federal government also raise questions over its prudence as despite a lack of fiscal space, the PTI government has planned to initiate 296 new projects in the next fiscal with allocation of 26.6% of the meagre Rs650 billion Public Sector Development Programme (PSDP).
In total, 994 schemes have been included in the PSDP, having total cost of Rs8.2 trillion. It needs Rs5.7 trillion to complete these schemes. Six hundred and ninety-eight ongoing projects have been included in the PSDP and Rs477 billion has been allocated for their completion.
For the 296 new projects, Rs173 billion or 26.6% of the proposed budget is allocated, according to the presentation given to the NEC. For even getting Rs650 billion, Planning Minister Asad Umar had to lobby, as the finance ministry had initially proposed only Rs536 billion.
Macroeconomic Framework
The NEC approved the GDP growth target of 2.1% along with sectoral growth of agriculture (2.8%), industry (0.1%), and services (2.6%) for 2020-21. While striking a compromise with the finance ministry, the planning ministry excluded the reasons for negative economic growth of 0.4% in the outgoing fiscal year and threw the entire responsibility on Covid-19 in the NEC documents, according to the official documents.
Earlier, the planning ministry had blamed tough IMF programme, high interest rates, currency devaluation and hot foreign money inflows for the economic contraction for the first time in 68 years.
Average inflation rate for the next fiscal year is projected at 6.5%, which is lower than the IMF forecast of 8%. The government’s macroeconomic targets were largely in line with the IMF projections, which put the economic growth at 2% for the next fiscal year.
Industrial sector is targeted to grow by 0.1% and manufacturing sector is targeted to contract by 0.7% based upon LSM contraction of 2.5% in next fiscal year, according to the NEC. The construction and electricity generation and gas distribution are targeted to grow by 1.4% and 3.5%, respectively.
The services sector is expected to grow by 2.6%, against 0.6% contraction in the outgoing fiscal. The 2.8% agriculture sector growth in next fiscal year is projected on the back of growth in important crops and livestock.
The national savings are projected to decrease to 13.8% as against 13.9% of the GDP this year. The level is very low as compared to the regional peers. The total investment is also projected at 15.5% of the GDP against 15.4% this year.
The public investment, including the government, has been projected at 3.8% of the GDP for the next fiscal year, which remains unchanged. The low investment and low savings targets would mean that the economic growth rate of even 2.1% is ambitious.
The planning ministry has projected that the unemployment rate would jump to 9.6% in the next fiscal year, indicating that Prime Minister Imran Khan has failed to fulfil his promise of providing 10 million jobs.
National development outlay
The NEC approved Rs1.32 trillion national development budget for 2020-21, including over Rs222 billion borrowing from foreign lenders. The allocation is Rs350 billion or one-fifth lesser than Rs1.674 trillion original allocations for the outgoing fiscal year.
The NEC approved Rs650 billion for Public Sector Development Programme, down by Rs51 billion or 7.7% over the outgoing year’s original budget. The indicated amount of Rs650 billion is not sufficient to meet requirements of the ongoing projects, while the government will initiate 296 new schemes.
The NEC presentation showed that the federal PSDP spending would remain at Rs530 billion, which is Rs171 billion or 25% less than the original budget of the outgoing year. One key reason for less spending is the partial lockdown in the country but the FBR’s failure to perform is also a reason.
The combined development budget of the four provinces is estimated at Rs677 billion, which is 30% or Rs296 billion less than the outgoing fiscal year’s original allocations.
The federal and provincial governments’ decision to cut the development budgets by one-fifth highlights the serious fiscal challenges that the government faces in its efforts to revive the stalled IMF programme.
The IMF has so far not agreed to allow Pakistan to announce a major fiscal stimulus in the next fiscal year due to unsustainable public debt levels. The IMF has proposed 0.4% of the GDP primary deficit target, excluding the current expenditures. This leaves no room for the federal and the provincial governments to announce big development programmes.
The implementation of even the proposed Rs1.32 trillion federal and provincial development outlays would hinge upon the FBR’s ability to achieve Rs5.1 trillion tax collection target.
As against Rs1.67 trillion development outlay of outgoing fiscal year, the actual spending is now estimated at less than Rs1.1 trillion. The difference between approved and actual spending within a year is Rs604 billion or 36%, which is a big question mark on the working of the constitutional body.
The NEC approved Rs165 billion development budget for Sindh against Rs279 billion original budget of the outgoing fiscal year. The estimated spending is just Rs105 billion in this fiscal year.
For Balochistan, it approved Rs75 billion budget against Rs108 billion in outgoing fiscal year. The estimated spending by Balochistan is only Rs77 billion and next year’s budget is even less than the actual spending this year.
The Khyber Pakhtunkhwa (K-P) government gave a big surprise. As per the NEC presentation, the K-P government’s approved budget for next fiscal year is Rs100 billion, which is Rs84 billion or 57.6% less than the original budget. It is also Rs52 billion or 34% less than the estimated spending this year.
The NEC approved Rs337 billion development budget for Punjab, which is Rs13 billion less than the original budget. But its Rs131 billion or 63% higher than the estimated spending in this fiscal year.
PSDP breakup
Overall, all the federal ministries would get Rs418.7 billion in next fiscal year, which is Rs2 billion less than the outgoing fiscal year’s Rs420 billion spending estimates.
The budget of the national health services ministry has been slightly increased to Rs14.5 billion as against Rs13.7 billion in the outgoing fiscal year. The Higher Education Commission has also been given Rs29.5 billion budget, slightly above Rs29.2 billion of the outgoing year.
The education ministry also gets Rs4.5 billion, slightly less than the outgoing fiscal year. An amount of Rs5 billion has been proposed for the climate change ministry, down from Rs7.6 billion. Food and agriculture ministry to get Rs12 billion.
For the special areas like Azad Jammu and Kashmir (AJK) and Gilgit-Baltistan (G-B), an amount of Rs52.4 billion has been proposed in the new budget, higher this year’s level. Rs24 billion has been allocated to finance the schemes recommended by the members of National Assembly and Senate.
The finance ministry has been given Rs66 billion allocation, including the erstwhile Federally Administered Tribal Areas (Fata) now merged with Khyber Pakhtunkhwa.
The railways ministry’s budget has been increased to Rs24 billion, including Rs6 billion for Mainline (ML)-I project. The water resources division has been given Rs81.6 billion, down from Rs85.7 billion, while the industries ministry gets Rs800 million.
The National Highway Authority’s budget has been cut to Rs118.6 billion as against Rs155 billion allocation in this fiscal year. The Pakistan Electric Power Company will get Rs39.7 billion as against Rs42.5 billion in this fiscal year.
Despite closing the ERRA, the government has proposed Rs3 billion for it. An amount of Rs70 billion has been kept for Covid-19 related development expenditures. The NEC was informed that 149 projects costing Rs827 billion would be completed or expected to be completed by June 30, 2020, according to a handout issued by the Prime Minister’s Office.
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