Pakistan’s new government to present its first Budget today

Pakistan is having volatile situation in the prices of essential good since the new government of PTI has taken over. The current government had given to mini budgets earlier and this will be their firt official budget.

Their budget this year is mainly focused on revenue targets as given by the IMF bail out package. This will be an undoubtedly a very difficult task as most of the economy of Pakistan is undocumented and most of the revenue comes from indirect taxes

Following is an article by daily Dawn that sheds light on what to expect in the budget 2019

This year the government is set to announce a near historic 35 per cent increase in the revenue target for next year, which will mean a very aggressive tax plan and documentation drive will have to be launched to meet it.

Given that the country plans to be on an IMF program during this year, the space for slippage will also be limited.

If the government fails to meet its quarterly revenue targets, it will have to seek corresponding reductions in expenditure as well, which present problems of its own especially when the pace of economic activity is already under pressure due to interest rate hikes and currency devaluations.

Look for the tax plan in the budget, especially how realistic it is.

What do we make of this announcement that the defence budget is about to be slashed? Is this really an unprecedented step?

Cutting defence spending is particularly difficult for a country like Pakistan that faces multiple security challenges as well as ongoing military operations within the country against terrorist groups.

For the moment what we know about the cuts is that they will be applied mainly on salary expenditures for the officer corps and have been voluntarily agreed to by the military authorities themselves.

This is unusual but is not as unprecedented as one might think.

Take for example the difference between the amount that is budgeted under defence expenditures every year, and the amount that is actually disbursed during that year.

The graph shows this difference for each year from FY2009 onwards. In that year the amount actually disbursed was 11.42 per cent higher than what was budgeted for defence. That gap comes down steeply in the years that follow, and actually becomes negative from FY2013 till FY2016, meaning the government was disbursing less than what was even budgeted. In the two years that follow it climbs again, meaning the government once again began disbursing more than what was budgeted until the figure once again crosses 11pc by end of FY2018, right before the elections.

What is the role of the IMF in this budget?

Pakistan’s program with the IMF has not yet begun. What we have is a staff-level agreement, meaning the government and the Fund staff have agreed to the details of an adjustment program.

The next step is approval by the IMF board. Once that happens the program begins and the first tranche of the money is released within days.

But for the IMF board to agree, the government has to demonstrate its seriousness which it will do by taking the first year targets of the program and factoring them into the budget.

Once the budget has been passed by the National Assembly, it will go to the board along with the staff-level agreement that has similar targets for the next three years.

So even though the program has not begun yet, the budget can be said to be the first step towards implementation of the IMF advice for stabilization of the economy.