The Business | EDITORIAL/OPINISOunday N , June 130, 24021 Budget 2021-22: A story Chief Editor of uncatchable dreams out of which 369 billion will be from in - disappointed as development spending do not address the issues of lack of Irfan Athar Qazi ternational financial institutions. The has been hiked by more than 40 percent water, huge price hike of inputs and no E-mail: [email protected] tragedy is we are deep down muddled marked as Rs 1370 billion. The ex - subsidy on inputs. Therefore, more im - into circular debts already and we never penses planned to be incurred on the ports of food items which by the way [email protected] able to cut down debt servicing but we armed services constitute 16 percent of will face increased excise duties as well. are again planning to hike the load of the total outlay of the budget, which is So practically the expenditures without debts. Rs 8.48 trillion. Moreover, the alloca - revenues like dreams without outcomes. Tijarat House, 14-Davis Road, Lahore In terms of real growth the deficit tion is 2.54 percent of the GDP. The The aim behind such exemptions is to should be financed by growth not by debt servicing has been marked as of Rs promote the assembly of mobile phones 0423-6312280, 6312480, 6312429, 6312462 loans and we don’t see the practical poli - 3060 billion which comprised 38 per - as well as encourage investments in re - Cell # 0321-4598258 cies to implement growth since this gov - cent of the GDP. The PSDP budget is of fineries. Capital gains tax on stocks has ernment has taken the charge. This is Rs 964 billion out of which Rs 900 bil - been reduced by 2.5 percent in an effort also notable that growth should not be lion is for federal development expendi - to boost volumes further. Turnover taxes infused by consumption of mobile, mo - tures. The government kept the promise have been reduced across the board and 1270-B, Peoples Colony No I, Off: Chenone torbikes, cars and property as this widen of no new tariffs on utilities especially eliminated for all enterprises in Special Road, Faisalabad, Ph: 041-8555582 the gap of income inequality. The real electricity. Development spending has Economic Zones. Automobiles of PROF. KHAULA WALAYAT growth means that the living standard of been hiked by more than 40 percent. smaller size have also seen reduction in people should be raised by real wage in - Virtually every category of business, es - sales tax, or elimination of the Federal ISLAMABAD / RAWALPINDI he budget 2021-22 is a story of crement, lower inflation, more employ - pecially manufacturing and financial Excise Duty (FED) altogether. But what expenditures without revenues ment and increased per capita income. services, has received tax cuts. The lat - about the purchasing power to buy all N-125 Circular Road, Ph: 051-5551654, and approval of the IMF, so the The minimum wage for daily wagers ter is important because they tend to set these. So, in short, the exemption for in - 5532761, Cell # 0300-8567331 real budget is still to come. has been increased by more than 20 per - the bar for salary increments for many dustries will boost the capital regime as KARACHI T The acclaimed bundle of happiness cent, while salaries for civil servants private businesses too. Industry has been capitalists will be benefitted. Already 3rd Floor Kehkashan Mall 172-I Block II PECHS for everyone is delivered on Friday. Ap - have been raised by 10 percent. But if stuffed with numerous tax and custom corporation paid Rs 500 billion less tax. Opp Rehmania Masjid Main Tariq Road parently, this budget is very fancy theo - you incur the rate of inflation which is duty exemptions, ranging from raw ma - The regime which is totally surrenders Ph: 021-34524550, Cell # 0300-8251534 retically but when it comes to practical raised by six percent and salary raise is terials for textile exporters, paper and to mafias how will growth be insured. implication, I have some reservations almost four percent on average the dif - board, steel, pharmaceuticals, paints, Taxing commerce is a cruel towards based on previous records and the ques - ference is of two percent which is nega - chemicals, leather, electronics, cables small entrepreneurs who are the repre - tionable will and power of current state. tive growth in real wages. Also, notable and fiber optics and automobiles and on sentative of middle and lower class of The budget seems to give smiles to that hike in prices in international mar - and on. Hardly any industry is left out country. In my opinion not the cost of Trade deficit everyone at least for a time being. kets are going to be reflected in the of the bag when the tax cuts are all con - doing business should come down but According to a report, the trade deficit has widened by The total volume of the budget is of prices in domestic market means more sidered. Subsidies have been pro - ease of doing business by reforms which a whopping 30.56 percent to $27.488 billion July-May Rs.8.48 trillion while the revenues are inflation. If the government would be grammed at Rs 682 billion, of which a are impossible without addressing 2021 compared to $21.054 billion in the comparable pe - targeted on Rs.5.8 trillion of remarkable failed to address this upcoming pressure, giant share of Rs 596 billion is for the mafias and corrupt bureaucracy. riod of the year before - 27 percent lower than the $37.6 figure. Don’t forget that last year the ini - then everything will be in dump again. If power sector, an area of specific concern While concluding this budget raise billion in 2017-18 and only 13.5 percent lower than the tial target was set on Rs7 trillion which this genie of international hike in prices for the IMF. Likewise, the budget pro - many questions. First from where they $31.8 billion in 2018-19. Critics of the severely harsh up - was revised many times and finally set - will come out of bottle it will be near to vides massive power subsidies to K- will collect the revenues without re - front monetary and fiscal policies agreed with the Interna - tled at the target of Rs 5.5 trillion and impossible to catch it. The government Electric for both industrial support (Rs structuring the FBR. Without proper tional Monetary Fund on 12 May 2019 argue that the still was not achieved. In last fiscal year has targeted the 39 civil and military 22 billion) and for tariff differential reforms in industry, agriculture and containment of the historically high current account deficit we collected the revenues of Rs 4200 pensions as of Rs. 480 billion, including (Rs56 billion where last year’s spending FBR the brave and fancy incurs of of $20 billion inherited by the present government to a billion which remained Rs 3800 billion the raise of 10 percent in pensions. Isn’t on this was Rs16 billion). The prime budget will not be able to imple - trade deficit of $27.488 billion today reflects a need to re - after adjusting refunds. Now the ques - it the high time that military pensions minister’s promise that power tariffs mented. The most important factor is visit some of the earlier claims. First, the record high dis - tion is where did they adjust the deficit should come out from defense budget so will not be raised has put a lot of smiles they have not negotiated with IMF be - count rate (13.25 percent) and massive rupee depreciation of Rs 100 billion in setting next revenue less pressure will be on civil budget? on people’s faces, but now the govern - fore giving these exemptions and not in 2019-20 led to an undervalued rupee and stifled do - target. So, if include this amount of Rs The civil government expenditures are ment faces two key challenges in seeing increasing tariffs. mestic output while raising the budget deficit to an unsus - 100 billion then the deficit will be in - Rs 479 billion which is not so much as this promise through the first is to con - I am just surprised at the childish in - tainably high 8 percent of GDP. Sadly, the usual linkage creased. The next year targeted deficit is compared to the non-development ex - vince the IMF that these allocations are fused optimism of the government that between an undervalued currency and exports is not ap - Rs 3990 billion out of Rs 3420 billion penditures of Rs 7523 government necessary and there is no way around they will agree the IMF on such steps. parent in Pakistan as our major export items are heavily will be provided by the provinces. The which again is not a healthy proportion them. And if they succeed in this, then Is our government thinking that the US reliant on imported raw materials and semi-finished prod - government is planning to take domestic to development expenditures. second will be to ensure that taking on has adopted us again in exchange of air ucts that were rendered too expensive due to the rupee de - loans of Rs 2417 billion out of which We the economists divide the budget these spending responsibilities will not and military bases (proposed) and the preciation and the high borrowing cost made most national saving schemes will provide usually in 3 Ds. Development, Defense lead to further accumulation of the cir - US will influence the IMF and FATF? productive activities economically unviable. debt of billion 1241 billion, from bank - and Debt servicing and always propose cular debt. Where industry has been I think it is way too far from reality that True that the high discount rate attracted “hot” money to ing and nonbanking sector Rs. 1922 bil - that defense and debt servicing should given huge tax cuts the total budget of the IMF will agree. So, are we going to the tune of a little over $3 billion but this source of inflows lion and foreign loans of Rs 1246 billion be reduced. In this budget we are again agriculture is Rs 12 billion only which see real budget in upcoming months? is extremely fickle at best and most of these inflows left the country with the onset of the pandemic. Unfortunately, however, these inflows were not sufficient to strengthen the rupee. Secondly, there is a need today to focus on the trade deficit instead of the current account deficit mainly Politics of the budget because raising exports, particularly value-added exports, FAHD HUSAIN tranches dry up. Perhaps it may not remains one of the most desired forms of earning foreign need to walk out of the programme exchange. In this context, it needs to be acknowledged that he PTI wants to buy its way officially. Instead, it could just drag orders were diverted to Pakistan from the much more se - out of trouble. Who will pay the negotiations for as long as needed verely pandemic-hit competing countries like India and the price? The federal and use this time to throw money at Bangladesh: consequently our exports rose from 19.795 budget 2021-22 presented by Finance the electorate. Just like the PML-N billion dollars in July-May 2019-20 to $22.560 billion or T Minister Shaukat Tarin on Friday is did in its last years. $2.78 billion. It is, however, unclear whether this rise will the documented evidence of this po - Yes, you heard that right. The PTI continue once competing countries come out of the pan - litical strategy. He has rung the bell, government is essentially following demic mayhem. and the floor is open for business. the same trajectory: spend, spend, Economists acknowledge that post-pandemic easing of It is this business that the PTI spend and worry about how to pay monetary and fiscal policies fuelled growth (projected at wants to stimulate by aiming for for it later. Politics invariably over - 3.94 percent in the current fiscal year) that accounts for a growth touching five per cent next takes economics. The cost is always a trend evident in Pakistan for decades; notably, growth is year and crossing this threshold on steep one. accompanied by a rise in imported raw material and semi- the eve of elections. The progression But this is a delayed cost, whereas finished products. It is, therefore, no surprise that imports in the government’s political narra - politics requires instant gratification. rose from 40.849 billion dollars in 2019-20 to 50 billion tive is already visible. This narrative The government wants to provide its dollars in the current year or a rise of a little under 10 bil - is telling the voter — yes, the same disillusioned, disappointed and de - lion dollars with the largest increase in food and live ani - voter ravaged by inflation and unem - jected voters the gratification they mals (including a rise in wheat imports to meet domestic ployment — that difficult times are have been denied since the PTI came shortages and sugar imports to bring the domestic prices of almost over and good times, as prom - to power. Fair enough. Is there a fi - sugar down) - from 282.4 billion rupees in 2017-18 to ised by Prime Minister Imran Khan, nancial basis for this though? The 371.5 billion rupees in 2019-20. are around the corner. This budget is theory that the government peddled Exhibit A for the new narrative. Gov - in the early days — and pretends to ernment spokespersons will turbo- believe in it till today — is that a cer - charge the narrative in the coming tain linear logic has flowed through days and weeks, and fuel it with data its economic policy via Asad Umar, that has nourished the budget docu - Hafeez Sheikh, Hammad Azhar and ment unveiled in parliament on Fri - Shaukat Tarin; that all these gentle - Skimming through Budget 2021-22 day. The budget tells a story steeped men have essentially stayed on the penditure is deflated in such a way government too has allocated expenditures which include PSDP in ambition. The story says the gov - original PTI message and plan and that the imbalance between them money for some vital interventions (Rs900 billion), grants and direct ernment will now loosen its belt, this 2021-22 budget is a continuation does not exceed an IMF-mandated in the agriculture sector. The du - transfers (Rs1850 billion), subsi - spend its money, freeze hikes in util - of this grand plan. ‘See we told you deficit target. ties on silos and warehouses are dies (Rs682 billion), and Covid-19 ity charges, save citizens from further we were on the right track’, they are A ‘V’-shaped recovery of a reduced to enable the farmers to related expenses (Rs125 billion) are taxation and inject booster shots into now saying with a triumphant smile. Covid-struck economy resulting in store their produce and avoid ex - non-mandatory and discretionary programmes like Ehsaas and Naya Except, this is not entirely correct. double than expected growth (3.94 ploitation by middlemen. Provi - expenditures (that’s why they are Pakistan Housing. The growth un - The fact is that the PTI’s handling of percent) for the outgoing fiscal sion of collateral-free loans for often curtailed) and are budgeted at derway is expected to finance this the economy has lurched from one year helped Shaukat Tarin make small and medium enterprises Rs2875 billion. The total shortfall ambition. Large-scale manufacturing experiment to another, from one ap - some bold moves by saying no to (SMEs) will help SMEs to con - for the above-mentioned four ‘Ds’ is clocking impressive numbers, agri - proach to another, and from one min - the IMF’s standard recipe of re - tinue providing jobs in the infor - is Rs3927 billion. culture is giving bumper yields, re - ister sent packing to another. The source mobilization. Refusing to mal sector. The government is expecting mittances are raining down like never government has blundered on proj - increase the tax burden on existing Reduction of duties and taxes on some proceeds from privatization before, tax collection is showing en - ects and fumbled on reforms. For taxpayers and resisting the demand small vehicles (on average a small and some provincial surplus but couraging trends and the twin deficits three years, it kept burdening citizens for electricity tariff increase, he is car would be Rs200,000 cheaper) would have to borrow at least have been tamed. Well, at least these with pain without any major corre - eying on expanding the tax net will help some to graduate from Rs3200-3500 billion if it gets some are the fancy talking points that gov - sponding macro benefits to the econ - DR ABID QAIYUM SULERI through use of data and technol - motorbikes to cars. It will also in - additional revenue from the above- ernment spokespersons are carrying omy. The FBR was not reformed, the ogy. While listening to the budget crease the production of small cars, mentioned heads. This calculation in their pockets as they troop out to power structure was not restructured n the given circumstances, speech, my initial reaction was that creating some jobs as well as addi - is valid if the government sticks to wage data wars in the cushy confines and the state-owned enterprises were Budget 2021-22 presented the finance minister is trying to re - tional revenue for the FBR. Like - the budgeted fiscal deficit. Any un - of TV studios. not privatised. Finally after three yesterday by Shaukat Tarin duce the cost of doing business. wise, record allocation for different foreseen expense or slippage in Leader of the Opposition in the years, politics caught up with the coIuld not have been better. Let me Abolishing 40 percent withholding initiatives of the Ehsaas Pro - revenue (increased fiscal deficit) – National Assembly Shehbaz Sharif PTI’s economy. The government re - explain why: the art of preparing a taxes, withdrawing customs and gramme, for afforestation, water and the need for borrowing would and PPP leader Bilawal Bhutto- alised — or perhaps was made to re - budget in Pakistan is balancing regulatory duties on many items, security, the Covid-19 vaccine, increase. Let us talk of some bad Zaradari spoke to journalists after the alise — that if its economics needs with resources. limiting the discretionary powers power infrastructure, reducing re - news as well. The bad news is that finance minister’s speech and trashed continued down this path, the voters I classify our needs in four Ds: of FBR officials, and introducing gional disparities, climate change, the things that pinch an ordinary the budget and its lofty ambition. would take the government to the debt servicing, defence, day-to- third party audit in case of any dis - and a special grant for Sindh are all citizen are no more under the However, once the budget sweeten - cleaners in the next elections. Just as day administration, and develop - pute between the FBR and the tax - steps in the right direction. To im - purview of the federal budget. I am ers start to trickle down into the lives they had in the recent by-elections. ment. Resources are generated payer would result in a reduced prove the purchasing power of the referring to energy prices; electric - of citizens — regardless of the harsh So a decision was made: enough of from two streams: federal rev - cost of doing business, improve people, the minimum wage has ity and fuel – both oil and gas – realities of macroeconomics — the economics, let’s do some politics. enues (tax collection and non-tax ease of doing business, and – if been increased to Rs20,000 per whose prices are determined by opposition will have an uphill task Nothing does politics better than income) and borrowing (from do - implemented as perceived – help month. Likewise, a 10 percent in - Nepra and Ogra and are linked tearing into the government’s eco - growth. It doesn’t matter how that mestic banks as well as external improve the trust deficit between crease has been made in govern - with the international market. The nomic performance from the political growth is coming, and where it is sources). Since the needs always the people and the tax collectors. ment pays and pension. government has resisted the IMF’s angle. Specialists within the opposi - coming from, and who will ulti - outrun the resources, the makers of Reduced cost and improved ease Admittedly, these increases are not demand to increase the component tion ranks will no doubt slice and mately pay the bills for the growth — Pakistan’s budgets continuously of doing business will help in the sufficient to cope with inflation. of petroleum levy in the budget, yet dice the budget and its fanciful pro - none of this matters as long as it is struggle to match them. What revival of the economy that should However, let me take you back to the way petroleum prices are in - jections through smart financial logic coming fast and strong and flowing makes this complicated task even in turn result in additional revenue the four ‘Ds’ and limited resources. creasing in the international market weaved around technicalities, but if thick and lustily like the gravy train it more complex is the fact that the collection, a rationale for the his - Net federal revenue after provin - (today’s price of crude is $71 per there is a visible easing of the burden is. It is a familiar path that requires strings attached to borrowing from toric high revenue target in the cial share from the divisible pool barrel), it will soon be impossible on the citizens, the government will little innovation. The only problem is the IMF are always directly linked budget. for the next year is budgeted at for the government to keep subsi - be in a comfortable position to fend that elections are still two more budg - to such budgetary indicators as tax The good news is that the Rs4497 billion. On the expense dizing the oil process. Commodity off the opposition attack. ets away — unless the prime minister collection, inflation, primary budget has something positive for side, the three mandatory and non- prices in the international market This may even entail the govern - pulls a fast one on the opposition — deficit, interest rate and currency almost all walks of life. The in - discretionary expenses – debt serv - are also increasing. This will influ - ment walking out of the IMF pro - and maintaining this spending spree value. When Pakistan is getting fi - dustry and corporate sectors seem ice/repayment (Rs3060 billion); ence domestic prices of edible oil, gramme. No new taxes and no hike in the hope that revenue will flow in nancial assistance from the IMF, satisfied on the different measures defence (Rs1370 billion); and (run - pulses, and other imported items. If in utility rates etc essentially show without further taxation could be a as it is doing now, the making of that would improve their prof - ning of) day to administration, pay these trends continue, the govern - that the government has calculated it stretch. Economics requires pain, and the budget starts with the setting of itability and productivity. Agricul - and pension (Rs1119 billion) are ment will have to borrow more – or can manage without the IMF till the politics requires a feel-good factor. a target for primary fiscal deficit – ture is a provincial subject, and I budgeted at Rs5549 billion. There pass on the impact to consumers. elections. The massive increase in re - Feel-good factors win elections. The the gap between revenue and ex - am expecting the provincial gov - will be a shortfall of Rs1052 billion The next fiscal year is about to mittances has stabilised the govern - strategy seems obvious. Shaukat penditure after debt servicing. The ernments to allocate money for rupees to meet these mandatory ex - start. Let us see how it unfolds for ment’s finances and it believes it will Tarin may need to thank Ishaq Dar revenue gets inflated, and the ex - agriculture. However, the federal penditures. Development-related the people. not slide back into the red if the IMF for showing him the way.