The total size of the federal government expenditure is estimated around Rs9.5 trillion, which is higher by nearly Rs350 billion or 4% over this year’s revised budget of over Rs9 trillion. There was an increase of 11% in expenditures if compared with the original budget of Rs8.5 trillion, which now has become redundant. The current expenditures are targeted to grow only over 2% to Rs8.6 trillion against the revised estimates. The gross revenue target has been set at Rs9 trillion – higher by 23% that the government wants to achieve through combination of taxes and non-tax measures, including the petroleum levy on petrol and high speed diesel.
The major challenge will be arranging a record $41 billion in foreign loans in next fiscal year to remain afloat. Pakistan will be requiring to repay $21 billion foreign loans, it will be needing another $12 billion for current account deficit financing and $8 billion more for increasing foreign exchange reserves to $18 billion. Earlier, during the Doha round of talks, the government had presented a primary budget deficit framework, which the IMF did not agree to. The coalition government gave up to the IMF’s demand to exhibit primary budget surplus, pitching it at Rs152 billion by planning fiscal consolidation of nearly Rs1.8 trillion or 2.2% of the GDP in the next fiscal year. The IMF talks have so far remained inconclusive and it may take some time after the finance minister announced certain measures contrary to the desire of the global lender. While setting the inflation target at 11.5%, the total size of the 2022-23 budget will be Rs9.5 trillion, higher by only 4.6%, which makes the expenses forecast unrealistic from day one. It will be very difficult for the government to virtually freeze expenses in the next fiscal year when there will be a significant increase in cost of living. The coalition government may unveil a nearly Rs9.5 trillion budget that has been prepared on a highly ambitious target of a mere 4% increase in expenses but one-fourth surge in revenues aimed at meeting a core condition of the International Monetary Fund.
The federal government has finally agreed to exhibit a primary budget surplus of nearly Rs200 billion by planning fiscal consolidation of nearly Rs1.8 trillion or 2.2% of the Gross Domestic Product in the next fiscal year. The budgetary framework is projecting about 0.3% of the GDP primary budget surplus – showing that its net income will be more than the expenditure, excluding debt servicing cost. A major part of the new budget i.e. the Rs5.5 trillion or 58% of the budget will be spent only on two heads. One debt servicing and second on defense. There is an alarming increase of over Rs800 billion or 26% increase in debt servicing cost in just a year. In the outgoing fiscal year, the share of these two components was half of the total budget. However, the major challenge would be arranging a record $41 billion in foreign loans in the next fiscal year to remain afloat. Pakistan would require repaying $21 billion foreign loans. It will need another $12 billion for current account deficit financing and $8 billion more for increasing foreign exchange reserves to $18 billion.
The defense services’ share remained constant but the debt servicing has gone out of control. Although the government will be aiming at close to an Rs200 billion primary budget surplus, the finance ministry will still borrow Rs4.6 trillion to run its operations. This will be the highest-ever debt servicing cost in the history of Pakistan. The defense budget is estimated around Rs1.53 trillion –up by Rs73 billion or 5% over the revised budget of the outgoing fiscal year. The Ministry of Defense has already taken a Rs80 billion supplementary budget last week for the outgoing fiscal year.
The government may drastically cut subsidies that are estimated near Rs650 billion in the next fiscal year. These are down by Rs850 billion or 60% over this year’s revised estimates, the sources said. The cost of pensions is Rs530 billion and the running of the civil government consumes only Rs550 billion, the sources said.
As against Rs1.6 trillion estimated primary deficit in the outgoing fiscal year, the new budget may be unveiled with a primary surplus target of nearly Rs200 billion. The Rs1.8 trillion or equal to 2.2% of the GDP steeper adjustment will be challenging in an election year and chances of slippages will remain high. The sources said that a budget of close to Rs9.5 trillion has been prepared on the assumption of less than 4% increase in expenditures over the revised estimates of this year but one-fourth increase in income. The debt servicing cost that was Rs3.1 trillion in this year will jump close to Rs4 trillion –an increase of Rs800 billion or 26%. The domestic debt servicing will eat up nearly Rs3.5 trillion while another Rs500 billion will be given for foreign debt servicing. The average interest rate in the next fiscal year is estimated at 14%, which would take away what the government will earn in additional revenues.
The new budget for fiscal year 2022-23 provides solace to the salaried class whose tax burden has been significantly lessened in addition to 15% increase in salaries of the inflation-stricken government employees. However, the proposal to slap Rs50 per liter petroleum levy for additional Rs300 billion income will not only overshadowed some good measures but may also make it challenging for the coalition partners to defend the budget. No measures have been announced to curtail the current account deficit or the imports as the finance minister sets the current account deficit target at only 2.2% of the Gross Domestic Product (GDP).
The government has proposed Rs740 billion new taxes, including Rs440 billion tax measures proposed by the Federal Board of Revenue. Some of the major relief measures will be offset by the increase in petroleum prices rates due to an Rs50 per liter levy along with 17% sales tax. The tax burden on registration of luxury cars of above 1,600cc has been doubled while the rates on sales, purchase and gains made on the properties have been significantly increased.
The increase in prices of electricity, gas and petroleum products would also jack up the cost of the military and the civilian government, which has not been truly reflected in the budget figures proposed by the finance minister.
A major challenge that the finance minister has set for himself is to deliver a primary budget surplus of Rs152 billion, particularly when the provincial governments have announced big development budgets that leave little room for Rs800 billion cash surpluses of four federating units, as budgeted by him.
The government is planning to focus on agriculture, productivity enhancement and exports promotion in the next budget. The budgetary framework is projecting about 0.2% of the GDP primary budget surplus. It is expected that the net income will be more than the expenditure, excluding debt servicing cost. The domestic debt servicing will eat up nearly Rs3.5 trillion while another Rs511 billion will be given for foreign debt servicing. The average interest rate in the next fiscal year is estimated at 14%, which would take away what the government will earn in additional revenues.
Although the government will be aiming at Rs152 billion primary budget surplus target, the finance ministry will still borrow Rs4.6 trillion to run its operations, thanks to nearly Rs3.95 trillion debt servicing cost in fiscal year 2022-23. This will be the highest–ever debt servicing cost in the history of Pakistan. The Rs9.5 trillion size of the budget is higher by nearly Rs418 billion or 4.6% over this year’s revised budget of over Rs9 trillion. There was an increase of 11% in expenditure if compared with the original budget of Rs8.5 trillion, which now has become redundant.
The current expenditures are targeted to grow only 3% to Rs8.7 trillion against the revised estimates.
The defense budget is estimated around Rs1.523 trillion –up by Rs43 billion or 3% over the revised budget of the outgoing fiscal year. The Ministry of Defense has already taken Rs110 billion supplementary budget for the outgoing fiscal year.
The government has drastically cut subsidies that are estimated at Rs699 billion in the next fiscal year. The government has estimated receiving $16 billion in foreign loans in the next fiscal year for budgetary purposes. The Federal Board of Revenue’s tax target has been set at Rs7 trillion that is higher by 17% over the revised estimates. The non-tax revenue receipts are projected at Rs2 trillion, which will require 52% growth, indicating that the government will restore petroleum levy rates.
The most critical moves coming out of the IMF program in the budget relate to an almost negligible change in subsidies (Rs699bn next year against Rs682bn in the current year) and a reduction in power sector subsidies. That would mean the national average electricity tariffs would go up by more than 20pc with a cumulative financial impact of almost Rs1.5 trillion. The allocation for power sector subsidies for the next year is kept at Rs570bn against Rs596bn during the current year, a decrease of 4.4pc. On top of that, a non-tax revenue target of Rs750bn has been set for the petroleum development levy (PDL), up almost 455pc from an estimated collection of about Rs135bn during the current year.
In the previous year’s budget, the PTI government set Rs610 billion target for PDL but later gradually scaled it down as global oil prices surged. This means the current government would not only end the ongoing Rs10-23 per-litre subsidy on petroleum products but also start collecting PDL over the next year which is one the requirement to revive the IMF program.
The petroleum levy collection target has been set at Rs750 billion on back of the Rs50 per litre levy. This is the second unrealistic target after the primary budget surplus. For the outgoing fiscal year, the previous government had set Rs610 billion levy collection target but the revised collection figure is now shown at Rs135 billion.
Federal Board of Revenue’s tax target could be set at Rs7 trillion, which is higher by 17% over the revised estimates. The non-tax revenue receipts were projected at Rs2 trillion, which would require 52% growth, indicating that the government would restore petroleum levy rates.
The overall size of the next year’s budget is estimated at Rs9.5tr, up from Rs8.487tr for the current year, showing an increase of about 12pc. Although the overall budget deficit is projected at Rs3.8 trillion due to an anticipated Rs800 billion provincial cash surpluses, the federal government will still have a Rs4.5 trillion deficit, equal to 48% of the total size of the budget.
The author, Nazir Ahmed Shaikh, is a freelance columnist. He is an academician by profession and writes articles on diversified topics. Mr. Shaikh could be reached at [email protected]