Is Budget 2020-21 Really A ‘Corona Budget’?
By Ailia Zehra, Shazia Mehboob, Raza Hashmi and Abdullah Momand
Pakistan Tehreek-e-Insaf (PTI) government presented its second budget last Friday amid the coronavirus pandemic which has crushed economic activity across the globe. Prior to Minister Hammad Azhar’s budget speech, Adviser to Prime Minister on Finance Hafeez Sheikh had referred to budget 2020 as the ‘corona budget’, suggesting that it will offer relief to those severely affected by the pandemic. But as the details emerged, the federal budget seemed unrealistic for a country dealing with a public health emergency.
Various stakeholders have opined that the budget does not adequately aim to tackle the extraordinary circumstances and the fallout of coronavirus pandemic in the country.
The starkest contradiction which implies that the ‘corona budget’ may not have taken into account the ongoing crisis in the country lies in the revenue target which was increased by 27 per cent to Rs 4.963 billion.
Pakistan Businessmen and Intellectuals Forum and All Karachi Industrial Alliance (FPCCI) member Mian Zahid Hussain says that the government’s announcement to boost revenue by 27 percent without introducing any new taxes is beyond understanding. “The decision will put additional burden on tax administration which will be transferred to the business community amid sluggish economic activities and negative growth rate”, he added.
Economist Dr Asad Sayeed who represents Sindh in the National Finance Commission (NFC) says that the budget would have you believe that coronavirus is a thing of the past rather than an ongoing pandemic, adding that the funds allocated in the name of coronavirus are mere tokenism.
Sayeed says that the only thing they seem to be concerned about is that the growth rate has fallen due to coronavirus and they want it back up. “But that is not how it is revived. Even at the cost of a few thousand lives it won’t be achievable”, he added.
While the government has reserved Rs70 billion in the development budget for coronavirus and other natural disasters, the amount is likely to be used for economic packages rather than the public health emergency.
“They were under pressure from donors after the recent debt service relief to spend it on response to the COVID crisis. But it is clear that this money is to be spent on the routine program and the government has no intention of ensuring social protection using these funds”, he says.
Zahid Hussain says that the revenue target may somehow be achievable only if a mini-budget is introduced, which will add to the problems of the masses and the business community. Further, he said a reduced spending has been envisioned except for the defence and debt servicing sector, which will be hard to manage for the government.
Executive Director Centre for Peace and Development Initiatives (CPDI) Mukhtar Ahmad Ali agrees. He says that the low growth/ economic activity expected in FY 2020-21 due to the impact of Covid-19 seems to have been ignored by the government.
Ali further said that after failing to achieve the target, the government may need to cut down the planned expenses. “Typically, when the government needs to reduce expenses, it opts for cuts in social sectors during the year”, he said.
He added that funds allocated for Public Sector Development Programme (PSDP) continue to be on the lower side, which means fewer jobs, fewer development projects and no government policy to stir up economic growth through public sector investments.
‘Printing more currency notes will be disastrous’
Zeeshan Hashim, a Pakistani economist at Brunel University London, said that borrowing loans from local banks or excessively printing currency notes would be damaging for the country, adding that the practice would reduce the amount of loans for the private sector.
“The reduction in loans for the private sector will directly impact the level of investment in the country which will lead to rise in unemployment”, the economist added. Hasham also said that printing of more currency notes means devaluing the country’s currency and inviting high inflation, adding that the current fiscal budget has limited development funds due to which there is no chance of economic boost or stimulus.
Nadeem Ahmed, a government employee, is disappointed with the budget. “I have never experienced a more anti-poor budget before”, he told Naya Daur Media.
Meanwhile, the business community, especially manufacturing sector which was expecting a stimulus package, is not pleased with the federal budget. Manufacturing, agriculture and services sectors — the three driving agents for the country’s economy — have all rejected the budget.
No relief for falling agriculture exports
The agriculture sector that provides 36% of total employment to the workforce is facing continuous losses. With borders shut, flights suspended and sea trade halted, agriculture export has experienced a sharp decline. Maroof ul Abdideen, a member of Multan Chamber of Commerce, told Naya Daur Media that farmers were expecting something considerable to be regarded as a stimulus. “Our exports are dashed to zero. Multan is the epicenter of mango export. However, this year the exporters have no option but to give away export quality mango to local markets”, he said.
Rice exporters, he says, had also invested in export quality rice yields like they normally do, but now they are unable to pay their loans. “There is no relief for farmers in the budget.”
Locusts threat overlooked
Rs10 billion in the budget have been reserved for locust control, but the funds have been termed insufficient to contain the threat.
Rana Arjumand, a farmer and member of the LCCI, says that the allocation of Rs10 billion for food security including locust eradication program indicates that the government is unaware of the extent of threat the locusts pose to the food security and economy as a whole.
“Locusts are eating away everything in their way, and we have been told that a new wave of locust attacks will begin next month. This can create a situation of food insecurity which may even become a national security threat”, he says.
Arjumand fears the amount is insufficient to handle the locust challenge and warns that our inability to contain the threat will cause massive loss to the economy. “Our grain and crop markets are dwindling, but the media is not covering the worsening situation”, he added.
Construction sector is not satisfied with the budget either. Ikhlaq Bajwa, a renowned builder and member of the LCCI says: “We had a minus growth in GDP for year 2019-2020. The construction industry package was announced too late. We are dealing with the fallout of the pandemic where people continue to lose jobs and per capita buying power has reduced considerably. Middle class buyers have postponed their investment plans and we are witnessing a stark dip in real estate business.”
Explaining the effect of the coronavirus crisis on the construction sector, he said: “Unemployment has its domino effect. No employment, no buying power. The budget offers no relief to help us deal with the setback.”
Senior Vice President of Lahore Chamber of Commerce and Industry (LCCI) Khwaja Shahzad, who is infected with the coronavirus, says that the PM’s economic team lacks the vision to improve economic growth. “We needed an injection of a stimulus which could have induced growth, but they did not provide anything to that effect.”
He also said that corruption has increased under the PTI government, adding that one has to pay bribe to get a file approved from government offices. “This budget is just as disappointing as the PTI government’s handling of the economy”, he said.
Another businessman and former vice president of the LCCI Fahim Saigol says that the community had suggested in its budget proposals that keeping in view the economic meltdown caused by the coronavirus pandemic, the government should bring SRO 1125 in effect again, providing 5 zero-rated export industries with a relief of no tax-no refund regime. “But all our demands fell on deaf ears.” He further said that the import industry was facing cash flow crisis, but the budget speech had no mention of it.
KP traders reject ‘unrealistic’ budget
President of Khyber Pukhtunkhwa Chamber of Commerce Muhammad Afzal, while talking to Naya Daur Media, said that this budget was not acceptable for the people of the province including traders. Afzal added the province’s economy had already been ruined by the prolonged war on terror and the incumbent government’s unrealistic policies have added insult to injury.
Afzal said that despite its failure in the previous years to meet the unrealistic targets, the government once again set unachievable goals.
He said that the inflation rates reached 13 per cent due to the government’s flawed policies. “Now they are claiming that they will reduce the inflation rates by 6.13 percent which is not possible on ground because the fuel rates are low. But government is still taking the highest taxes on fuel”, he said.
Further, he wondered how the inflation rates will be reduced when the government has introduced new taxes on traders and ‘keeps harassing them through FBR and provincial government’. “Now their so-called tiger force will go to markets to record videos of the shopkeepers traders. This is tantamount to harassment and intimidation”, he said.
Dr: Arsalan Khan, Swabi University’s Economic Department head, thinks the expenditures cannot be managed with an amount of 1.7 trillion rupees.
While commenting on budget deficit of around 33 billion, he added that this would be a real challenge and the government will have to take loans to manage this crisis which will trap the economy further. Dr Khan is also unsatisfied with the development allocation and laments that the development budget is only 11 per cent of the total budget.
Commenting on government’s aspiration to increase GDP up to 2.2 per cent, he said that it was not achievable with only Rs700 billion for development. “With no economic activity and such a low amount for development, achieving these targets is next to impossible”, he said.
Many conditions in the budget appear to be following the IMF requirements when the government could have negotiated softening of these requirements.
Sayeed says there was a lot of room to negotiate with IMF, but for that you have to believe that corona is a problem. “It seems that the government in Islamabad does not consider it to be one. It’s a denial mode that permeates not only their pronouncements but also their policy-making”, he said.
Whopping amount for housing in times of corona
Rs30 billion have been allocated for Naya Pakistan Housing Authority, which is less than the funds allocated for heath i.e. Rs25.5 billion.
Dr Sayeed says the government’s keenness on housing in the middle of a pandemic leaves one dumbfounded. “They say its for labour intensive, but subsidies and amnesties have been given to land developers and real estate individuals.”