• 042-35941921, UAN: 03-111-999-101
  • info@kipscss.net

Thoughts on the Budget 2020-21

  • Dr Kamal
  • July, 2020
  • 343
  • Budget (Mini) Bus

It is clear that with dwindling exports and falling home remittances, the real challenge in 2020-21 will come from the external account’s front

As Pakistan’s moves towards its Fiscal Budget 2020-21, likely to perhaps be the most difficult since its inception, ironically the national economic management seems to be in complete disarray. An absence of economic leadership, lack of coordination amongst various ministries, no clear-cut vision or direction to take the economy forward and the sheer inability to proactively deal with looming economic issues seems to rule the roost - a game of shadows on who really is in-charge! If one was to ask for an organogram on the basis of which Pakistan’s economy is currently managed, one is sure the government itself would struggle to provide one.

A web of ministers, advisors, special advisors, consultants, friends, tigers, etc. who - what to talk about working in tandem underneath a controlling authority - are in fact a bunch of individuals on the loose, operating in an environment of disconnect, holding portfolios non-commensurate to respective abilities, overlooking multiple posts that either bear no intra portfolio synergies or in some cases simply victims of neglect owing to frequent changes in persons managing those portfolios, resulting in an inefficient management structure that in essence fails to clearly identify where the authority ultimately rests.

In the process no one truly feels responsible and is willing to take the blame in case of a mishap, be it be an air crash, a sugar price debacle, IPP oversights, a pest/locust attack, mishandled or expensive borrowings/deposits, negotiating of an ill-conceived front-loaded IMF programme that borders on coercion rather than support - the list goes on. As if this confusion and uncertainty was not bad enough, the appointments or human resource choices seem even more intriguing. Whatever happened to the lofty claims of merit, track record, finding the best experts and appointing only those personnel who have their interests aligned at home instead of abroad?

Anyway, back to the budget, where people are beginning to get concerned about what really is in store and on whether this economic team is even capable of grappling with the kind of economic challenges that face Pakistan today? The negative effects from the COVID-19 pandemic are already beginning to unravel tangibly whereby now it is quite evident that growth is going to be negative (may be to the extent of -ve1.50 percent), Pak Rupee is once again beginning to slide, domestic consumption has slumped by almost one-third resulting in reduced revenue collection by almost an identical percentage, and pressure on the external account is building due to rapidly falling exports and home remittances. Just to put things in perspective, exports month-on-month in a year to year comparison fell by about 70 percent in the last two months and nearly 30 percent foreign Pakistani workers officially reported that they have lost their jobs, something which is bound to adversely affect home remittances in the coming months.

Given our young population and a high population growth rate, Pakistanis need almost 2.50 million new jobs every year, something that can only be catered to by hitting a growth rate of +7 percent. However, on the contrary, it appears that even by conservative estimates nearly 1.20 million jobs instead stand eroded since January 2020 to date.

Naturally, the budget needs to be structured in a way that it incorporates the desired outcomes. To start with, the revenue side will have to be prudently rationalised, meaning the collection target needs to be adjusted in accordance with market shrinkage. Given that economic activity is likely to shrink by at least one third, a realistic revenue collection target for 2020-21 correspondingly should be at best 4.0 trillion rupees. For any additional needs the government will have to resort to borrowings, as its public spending is bound to swell amidst these difficult times, having already announced a pandemic support package of PKR1.0 trillion in the coming year. More importantly though, a rupee saved is a rupee earned and this is where the prime focus of this budget should be. With CPI inflation on the decline (reported at nearly 8.50 percent in May 2020) the most logical thing would be to reduce the interest rate to at least 6 percent if not more. As the government is the largest borrower in the economy in any case, this step alone will give the national exchequer a fiscal space of around Rs1500 billion. Combine this by any savings that the government can manage by giving a long-awaited haircut to its own size and the revenue outlook for Budget 2020-21 already starts to look quite promising.

An unprecedented drop in oil prices is yet another area where the government could create extra fiscal ...

Share on facebook or twitter

Email to a friend