On May 26, Federal Minister for Finance Ishaq Dar unveiled the last budget of the current PML-N government. The budget depicts PML-N’s approach of promoting the development agenda, which includes short- and long-term measures for macro-economic stability, curbing energy crisis, infrastructure development, expanding communications network and improving tax collection. However, poor strata of society have also been given notable relief in a number of areas such as health, education, agriculture, salaries, daily life needs and public transportation. Punitive actions, on the other hand, have been suggested for non-filers, who are exempted for any tax relief.

Some important highlights of the budget 2017-18 are as under:

a) The total outlay of budget 2017-18 is Rs 5,103.8 billion. This size is 4.3% higher than the size of budget estimates 2016-17.

b) The resource availability during 2017-18 has been estimated at Rs 4,713.7 billion against Rs 4,442 billion in the budget estimates of 2016-17.

c) The net revenue receipts for 2017-18 have been estimated at Rs 2,926 billion indicating an increase of 5.3% over the budget estimates of 2016-17.

d) The provincial share in federal taxes is estimated at Rs 2,384.2 billion during 2017-18, which is 11.6% higher than the budget estimates for 2016-17. The net capital receipts for 2017-18 have been estimated at Rs 552.5 billion against the budget estimates of Rs 453.6 billion in 2016-17 i.e. an increase of 21.8%.

e) The external receipts in 2017-18 are estimated at Rs 837.8 billion. This shows an increase of 2.2% over the budget estimates for 2016-17.

f) The overall expenditure during 2017-18 has been estimated at Rs 5,103.8 billion, out of which the current expenditure is Rs 3,763.7 billion and development expenditure is Rs 1,340.1 billion.

g) The share of current and development expenditure respectively in total budgetary outlay for 2017-18 is 73.7% and 26.3%.

h) The expenditure on General Public Services is estimated at Rs 2,553.6 billion which is 67.8% of the current expenditure.

i) The development expenditure outside PSDP has been estimated at Rs 152.2 billion in the budget 2017-18.

j) The size of Public Sector Development Programme (PSDP) for 2017-18 is Rs 2,113 billion. Out of this, Rs 1,112 billion has been allocated to provinces.  Federal PSDP has been estimated at Rs 1,001 billion, out of which Rs 377.9 billion for Federal Ministries/Divisions, Rs 380.6 billion for Corporations, Rs 30 billion for Prime Minister’s SDGs Achievement Programme, Rs 40 billion for Special Federal Development Programme, Rs 12.5 billion for Energy for All, Rs 12.5 billion for Clean Drinking Water for All, Rs 7.5 billion for Earthquake Reconstruction and Rehabilitation Authority (ERRA), Rs 5 billion for Special Provision for Competition of CPEC Projects, Rs 45 billion for Relief and Rehabilitation of IDPs, Rs 45 billion for Security Enhancement, Rs 20 billion for Prime Minister’s Initiative and Rs 25 billion for Gas Infrastructure Development Cess.

k) To meet expenditure, bank borrowing has been estimated for 2017-18 at Rs 390.1 billion, which is significantly lower than revised estimates of 2016-17.

Analysis

If ever a federal budget came to us floating on the wings of hope, it is this latest one.

In its last fiscal year, the government has given us a budget that wants to eat its cake and have it too. Current expenditures have been restrained to an almost unrealistic extent, while development expenditures have seen their largest hike thus far.

On the revenue side, almost the entire burden of incremental revenues has been placed on the shoulders of domestic business enterprises, while the presentation of the budget emphasised the relief measures for industry. FBR revenues are being hiked by 14pc, whereas they have struggled to meet far humbler targets in the preceding years. Other revenue heads see modest increases.

Likewise, the current expenditure target for next year sees a modest hike of 2pc from last year’s target, whereas development expenditure sees a hike of 25pc.

If current expenditure can stay within the prescribed limits, and the FBR can live up to expectations, this budget might yet pan out. But that is a very big if.

The finance minister went to some lengths to tout the achievements of his government, and he chose to compare today’s performance with that in fiscal year 2012-2013, the year before his government took office.

Amongst the boasts he laid before the parliament was one about “far-reaching structural reforms”, especially in the tax machinery, making it “more equitable and efficient”. This budget will put that boast to the supreme test.

Even in the area of subsidies, where targets set for last year were overshot by almost 50pc for the tariff differential subsidy, this year they intend to keep that head at the same target as last year, and cut K-Electric’s tariff differential payment by 50pc. This means either passing through large tariff increases during the year to consumers, or working to bring about a miraculous recovery in collections.

The budget wants to expand programmes to give away goodies under vague plans like ‘Electricity for All’, at the same time pushing through large infrastructure projects including CPEC (which sees an allocation of Rs180bn in the development programme), while avoiding any revenue measures that could upset the masses or broaden the tax base.

The latter priority has largely dropped by the wayside, and many of the measures to penalise non-filers of income tax returns have turned into glorified revenue schemes.

It will be interesting to see how this government walks the tightrope it has set for itself in the year ahead. It is not known for its subtlety in dealings with the opposition, nor for taking an innovative approach to vexing policy problems that plague state finances. Yet the targets of this budget will test their balance to the hilt. A safe bet would be to expect many ad hoc course corrections along the way.

Key Elements of Vision 2018-23

(a) Economic of growth: We should target growth consistently at above 7%. Over the next five years, the key drivers of economic growth should be investments and the environment of competition and innovation with the private sector as an engine of growth. The government institutions should be reformed to focus on improved service delivery and better regulations to support the growth momentum. Governance, transparency, accountability and business-friendly environment should become the key focus of our policies.

(b) Sustainable economic environment: Macroeconomic stability should be fostered through fiscal consolidation. While tax rates should be rationalised to facilitate the private sector, emphasis should be on broadening the tax base, and reforming FBR. A new National Finance Commission Award, that balances the functional responsibilities and budgets of federal and provincial governments should be announced with the view to support service delivery at the provincial level. Focus on results in our plans and budgets should be enhanced with the view to provide better services to the people.

(c) Poverty alleviation: Over the next five years, we should focus on provision of welfare services to the low-income segments of the society with the aim to reduce poverty from the current 29% to less than 10%.

(d) Energy security: With increased economic growth, the demand for energy in Pakistan is likely to rise considerably. In addition to the 15,000 MW in the pipeline to come in generation mode in period beyond 2018, we should plan to add another 10,000 MW of electricity, and another 2-3 bllion cubic gas per day. In order to achieve these targets, we must aim to implement regional connectivity projects;

(e) Food security: Improvements in yields of staple crops and import substitution of imported food items should be pursued to ensure availability of essential food items for all at affordable prices.

(f) Water security: Water security is necessary for our agriculture and consumption. A considerable amount of water passes through our rivers each year. Absence of dams means that a lot of water is wasted which we should preserve. Over the next five years we should concentrate on substantially completing Diamer Bhasha dam, and simultaneously improving water conservancy.

(g) Reforming Public Sector Enterprises: Over the next five years we foresee corporatisation and efficiency improvements of PSEs.

(h) Export competitiveness: Our exports have suffered due to slow-down in international trade and decline in commodity prices. Going forward, we should focus on enhancing export competitiveness and taking our export to GDP ratio to around 12%;

(I) Regional connectivity: We should complete the CPEC infrastructure projects in the shortest possible time and start reaping the benefits of regional connectivity.

(j) Regional disparity: We should ensure that regional disparity in all socio-economic indicators is annihilated by focusing our attention on the less developed areas.