PMLN govt’s fourth budget again fails to push the reform agenda
It was just another one of those long-winding and illusive budget speeches that play on fudged figures and lack vision orsubstance. Presenting his fourth budget since the PMLN government came to power in 2013, Finance Minister Ishaq Dar tried his best to portray himself as a champion who managed to turn around the country’s ailing economy. Butmuch of it may amount to nothing more than mere playing on the words.
The budget has come at a time when the country continues to teeter at the edge of many crises that threaten to spin out of control. The rural economy is in shambles, having registered a negative growth of 1.9 percent over the previous year. This is alarming, given that agriculture sector accounts for 21 percent of the country’s GDP and 40 percent of its total employment. But barring some cosmetic meas- ures such as lowering the price of fertilizers and promising cheap agriculture loans, Dar did not display any urge to introduce meaningful reforms to rejuvenate, modernise and mechanise this vital sector. His budget proposals also failed to give any confidence to foreign and domestic investors.
The Overseas Investors’ Chamber of Commerce and Industry (OICCI) in its post-budget comment termed the budgetary proposals “tradition- al with continued reliance on the withholding tax regime.”
It said no details were shared as to how the government planned to improve governance , coax the informal sector into the tax-net, reduce the burden of existing tax payers, reform the taxation system, document the economy, broaden the tax base or improve Pakistan’s ratings. “The budget proposals lack any out-of-the-box initiatives to attract new large foreign direct investment (FDI), which currently is not attracted to Pakistan,”
The finance minister blamed low international commodity prices for the 20 percent decline in exports. He conveniently ignored other, more important factors, such as the high cost of doing business in Pakistan, its persistent energy crisis, inconsistent government policies, its failure to develop the value-add- ed export sector, rampant corruption and political instability.
The falling exports are one of the many failures of this so-called “business-friendly” government. This is despite thegreater market access available through the GSP-plus status granted to Pakistan by the European Union.
Dar proposed a zero-rated sales tax regime for exporters of textiles, leather goods, surgical instruments, sports goods and carpets, but here again he failed to give a vision to improve the business environment.
The banking sector has a major role in spurring private investment. But if cuts in interest rates on as many as five occasions during the last two years failed to spur growth in private credit, then there is something rotten in the economy. Bankers say that the cuts only benefited the government, which aims to swap its large $40 billion local debt with cheaper loans.
Pakistan’s much-touted “all-time high” foreign exchange reserves are mainly owed to remittances by overseas Pakistanis and expensive borrowings. The government also benefited from low international oil prices, which are still not stable and if they go up, the burgeoning domestic demand for oil will further strain the current account deficit and also put pressure on foreign exchange reserves.
The proposed Rs 4.89 trillion budget aims to decrease fiscal deficit to 3.8 percent from the current 4.3 percent.However, for this the government is pinning too much hope on the $46 billion China-Pakistan Economic Corridor which it believes will take care of infrastructure development and help overcome the country’s chronic energy crisis.
Poor tax collection
Dar boasted that under his watch, tax collection increased by 60 percent during the last three years.He did not mention, however, that the number of tax-filers actually dropped during this period. The country’s tax-to-GDP ratio remains below 10 percent, as usual.
The much-trumpeted tax amnesty scheme proved a mega-failure and attracted just over 9,000 new tax payers against a target of one million. The government is targeting a 16 percent increase in tax revenues over the next year mainly on the back of its oppressive withholding tax and a slew of indirect taxes that together amount to Rs128 billion. The indirect taxation hits the common man the hardest.
The government has so far failed to privatise loss-making state-run entities. These plans are likely to remain stalled over the next year because of lingering political instability and a general lack of confidence in the PMLN government. Meanwhile, the government seems determined to keeppiling up expensive foreign debt. This was evident from Dar’s speech when he announced that the government would raise around $1.8 billion by offering global bonds, including $756 million Sukukbonds in the next fiscal year.
As one leading economist puts it, the PMLN government continues to be a reckless borrower that is tryingto run the show by juggling numbers.