A budget no one wanted

Federal budget 2022-23 is a budget no one in the country wanted. It is a make or break with the IMF. The PTI is not hiding its glee for being spared. The replacing coalition tried playing the just-arrived card and announced relief measures even before the budget and even more in the budget. Energy prices were raised only when it became clear that the IMF was not budging an inch. Behind it is no international conspiracy, but our past record. In these hard times globally, the key objective is not a manageable fiscal deficit but overcoming external vulnerability by bringing the current account deficit down. It is only possible by accepting the IMF’s fiscal targets and reforms for the release of next tranche to unlock the international financial inflows. Only then will the rise and rise of the dollar stop. Until late in the night of 15 June, it appeared that the government was still testing waters by delaying the third increase in petrol prices. But the announcement of raising petrol and diesel prices by Rs24.03 and Rs59.17 per litre shows that the Shehbaz government has decided to bite the bullet. It now makes sense why the budget presented in the Parliament has been declared ‘Provisional’ and the ‘Final’ numbers are to be presented during the session.

It is not just provisional numbers, but also contradictory visioning that dons the documents. While the IMF expects deceleration in an overheated economy, The Budget in Brief talks of ‘a growth budget’. Net federal revenue covers 90% of the two major expenses — debt servicing and defence. Part of defence and all other expenditures have to be met by internal and external borrowing of Rs4.7 trillion. The only growth expenditure here is the PSDP of Rs727. Financed entirely by borrowing, The Medium-Term Budget Strategy Paper makes the strange claim that the PSDP “plays an integral role in the mobilization of indigenous resources to uplift the social-economic conditions of the people”. From the sensible initial indication of Rs500 billion, it went up to Rs727 billion, though still below the past peak. In other areas too, there is no real attempt to reduce spending. Taxation measures are even more out of line. Income tax, which already has a low base, offers relief to the top brackets and stock brokers, besides raising the threshold. The only innovative measure is to bring traders in the tax net through a low, fixed tax regime. As per past experience, fingers are crossed here. All told, a fiscal deficit of 4.9% is a tough ask. The budget makers themselves are projecting FBR taxes share in GDP to increase marginally from 8.96% in FY22 to 9% in FY23. Nor is there any prospect of a jump in nontax revenue.

Underprojection of the deficit is not the only problem with the macroeconomic framework. The rate of investment is another. The budget documents mention the boom and bust cycle, but not its main cause — the persistently low and falling rate of investment since the 1980s compared to the high growing countries in the region. In FY22, the target of GDP growth was 5%. To achieve this, a rate of investment of 16.1% was planned. The same target of 5% growth has been fixed for FY23, but it is to be achieved by a significantly lower rate of investment of 14.7%. Are we expecting a revolution in productivity in a single year? With planners like these, we are not likely to see the last of the IMF.

Published in The Express Tribune, June 17^th, 2022.

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