The 2018-2019 Budget: Historic or Not?

The PML-N government’s newly appointed Finance Minister Miftah Ismail presented the sixth full-term budget in the National Assembly in April that is being taken with mixed feelings. Commenting that it was a “historic moment for the parliament that the 6th budget is being presented” While assuring the infuriated opposition, he stated that his government “cannot interrupt the 5.8 per cent GDP growth. However, the next government will have the right to make changes to the budget.”

Budget strategy 18-19

Expenditure for the government in FY18-19 has been set at Rs5.246 trillion. The target GDP growth rate for the upcoming fiscal year has been set at 6.2pc against FY17-18’s target of 6pc. The government intends to keep inflation to below 6pc. The intended tax to GDP ratio is 13.8pc, while net public debt is targeted to be contained at 63.2pc of the GDP. The budget deficit is also targeted to be contained at 4.9pc of GDP. A $15bn target for forex reserves has been set in FY18-19. As part of the budget strategy, social protection programs will be continued in the upcoming fiscal year.

Salient features

The outlay of the budget is Rs5.9 trillion. The tax revenue target is Rs4.435 trillion. Rs1.1 trillion is apportioned for defence sector while the GDP growth rate target is fixed at 6.2pc for the next year. The finance minister estimates forex reserves to come to about $15bn in FY18-19. Rs688 million rupees will be spent for alleviation of poverty in the coming fiscal year. Rs800 billion will be given in agricultural loans. Budgetary allocations for Benazir Income Support Program (BISP) have been increased to 124.7 billion rupees for the next financial year as opposed to previous 121 billion rupees. Further, Rs10 billion earmarked for Prime Minister’s Youth Program. It is good news that no duty or tax has been imposed on dairy farmers and livestock. The fiscal deficit is expected to be Rs2,029 billion, whereas, inflation rate will be contained below 6pc.

The exports target for next year is set at Rs27.30 billion and the defence budget is expected to be Rs1.050 trillion. Salaries and pensions of employees are increased by 10 pc. Rs25 billion special package for Karachi is also announced along with a hefty amount of Rs220 billion that is earmarked for subsides on power, textile, water, construction of small dams. The federal expenditure has been set at Rs1010 billion while the provincial at Rs1030 billion. The budget for development projects will be Rs201 billion. Rs39 bn allocated for Pakistan Railways. Rs137 bn is allocated for Gwadar infrastructure development in which road network, seaport, airport, hospital are to be constructed in Gawadar. The 7th NFC award will have a reduced federal share. The tax target for the Federal Bureau of Revenue (FBR) has been fixed at 4435 billion in the new budget.

Revenue

The total tax revenue target is Rs4,888.6bn, of which the FBR taxes comprise Rs4,435bn. According to the finance minister, “This target will be achieved through improved tax steps and improved tax administration. The tax base is being expanded and the percentage of tax is being reduced.” With the tax rates reduced for all tax brackets, the government expects the tax net will see a considerable increase as it estimates the revenues from direct taxes to increase next year. It also expects indirect taxes to increase by about Rs280bn. The non-tax revenue target too has been set at Rs1,246bn, according to a copy of the budget 18-19. Moreover, the provincial share in tax revenue will be increased from Rs2,316bn to Rs2,590bn.

Expenditure

As expected, the budget hikes current expenditures and cuts development. This is the first PML-N budget to do so. The hike in current expenditures is roughly 20pc, while development expenditure has been cut 20pc. The share of current and development expenditure respectively in the total budgetary outlay is 80.6pc and 19.4pc. Current expenditure has been estimated at Rs4,780.4bn, while development expenditure is set at Rs1,152.1bn. Interest payments are expected to rise 18.9pc to Rs1,620.2bn. The government has also tried to keep everyone happy, jacking up the budget for defence expenditures by 19.6pc to Rs1,100bn; pensions by 37.9pc to Rs342bn; and the civil government’s operational budget by 23pc to Rs463.4bn.

Salaries and pensions

A 10pc ad-hoc relief allowance will be provided to civil and armed forces employees with effect from July 1, 2018, according to the budget speech 18-19, while a 10pc increase across-the-board is also being proposed for pensioners. Considering the difficulties of low-paid pensioners, the minimum pension is being increased to Rs10,000 from the current Rs6,000. Similarly, family pension will also be increased to Rs7,500 from Rs4,500 previously. The minimum pension of pensioners above the age of 75 will become Rs15,000.

Defence

The defence budget has been set at Rs1,100bn from a revised budget estimate of Rs999bn in the previous year and a 19.5pc increase over the budgeted amount for last year. The increase in the defence budget for 18-19 is the highest since the PML-N took over in 2013. Capital receipts and payments The government expects to raise nearly Rs406bn through public debt, which represents a Rs91bn (28.9pc) increase over the previous year under this head. Floating debt will account for the greater part of public debt, with the government expecting to raise a total Rs292.5bn under this head. Rs200bn of this will come from treasury bill auctions — which represents a 344pc increase over last year — and the remaining from prize bonds. Permanent debt will be cut to Rs113.55bn from Rs184.93bn last year, with the most significant cut provisioned for ijara sukuk bonds, through which the government expects to raise only Rs10.62bn compared to Rs60bn last year. Further, the government also expects to settle Rs174bn of short term credit (compared to only Rs39.77bn last year).

Public Sector Development Programme

After being jacked up last year, the federal Public Sector Development Programme (PSDP) has been slashed by 20pc compared to last year’s budgeted amount, falling to Rs800bn this year. Although the government mentions the total federal PSDP will be equal to Rs1,030bn, the additional Rs230bn will not come out of the federal government’s pockets, instead being provided by self- financing by corporations and authorities. The allocation for the water division has been more than doubled to Rs79bn in 2018-19, with the announcement coming just days after the provinces and the federation agreed to a national water policy.

Meanwhile, the Capital Administration and Development Division will get 2.6 times the current amount in the coming fiscal year. The Interior Division, which had a Rs15.7bn budget this year, will get an additional Rs8.3bn. Among other divisions gaining generous bumps next year is the Pakistan Atomic Energy Commission, the budget of which has been hiked by a whopping 88pc to Rs28.3bn. A new allocation of Rs10bn has also been made for the Federally Administered Tribal Areas (Fata) 10 Year Plan. Meanwhile, the allocation for the housing and works division has been cut by almost half to Rs5.4bn.

Slash in budgetary allocations

The Clean Drinking Water for All programme, with a Rs12.5bn allocation in the current year’s budget, has been scrapped completely. The allocation for the National Highway Authority (NHA) has also been cut by a significant 34pc as major projects including the Karachi-Hyderabad and Sukkur-Multan motorway near completion. The power division also gets a Rs24bn cut, and is down to Rs36bn in the upcoming budget. The provinces’ share of PSDP has also been slashed by around 24pc to Rs850bn, bringing both the federal and provincial PSDP closer to revised spending in the current year of Rs750bn and Rs800bn, respectively.

The budget for the national health services has also been reduced by 49pc from Rs48.7bn to Rs25bn. Railways would also get Rs8.5bn less than the current year, which could be because of a reduction in its losses. However, it could also be because the division used only Rs22bn from this year’s budget, leaving Rs20bn unspent. Pakistan will also spend less on ensuring Sustainable Development Goals (SGDs) are met, as the allocation under this head has been slashed massively from Rs30bn to only Rs5bn. Meanwhile, the Special Federal Development programme and Energy for All programmes have been completely scrapped.

Among other interesting figures is the spending by the petroleum division this year, the budget for which overshot by Rs16bn while the original allocation had only been Rs554m. On the other hand, the planning, development and reform division was unable to spend Rs12.6bn out of its allocated Rs16.8bn.

Financing the deficit

The government intends to restrict the overall fiscal deficit to Rs1890.2bn or 4.9pc of the GDP, down from the revised estimates for the year 2017-18 which stood at 5.5pc.

While the government expects to raise 33.4pc more in external loans, it also faces a 137.7pc jump in repayments as loans mature. In maturing loans, long-term foreign loan repayments will rise 110pc to Rs601.8bn from last year, while repayments of short-term loans will jump 337.7pc to Rs174.2bn compared to Rs39.8bn a year ago. To finance its Rs1,890bn deficit, therefore, the government will jack up borrowing from local banks by 160.2pc — from Rs390bn to Rs1,015bn — to finance its expenditures. The government also plans to float Sukuk bonds and expects to generate Rs200bn from the auction of treasury bills over the last year’s budgeted figure, according to the Budget 18-19 document.

Contributed by Bilal Hussain

The writer is Staff Reporter & Content Writer at ‘Melange Intl. Magazine’ & ‘The Asian Telegraph’

 

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About Bilal Hussain 3 Articles
The writer is Staff Reporter & Content Writer in Melange International Magazine &The Asian Telegraph.