Dr. Hafeez Shaikh Presenting Federal Budget 2010-11 at the National Assembly
Pakistan’s budget for year 2010-11 was presented in the National Assembly by Dr. Hafeez Shaikh on Saturday, 5th June 2010. The budget speeches have previously largely been irrelevant as the post budget analysis usually takes a front seat with the autopsy taking place on the posture of the Finance Minister, the “burden on common man”, “lack of relief to the people”, “no let up in perks of the privileged” and even the mistakes of the budget presenter.
What was interesting yesterday was how Dr. Hafeez Shaikh explained the context of the current environment and how the PPP government was coming up with its 3rd budget. The environment he talked about was that of global recession where the unemployment in the US was at a high of about 10.5%, Greece being bailed out by IMF and EU, global giants being wiped out etc to our own challenges of war on terrorism, energy shortages, historic high inflation and also operating under an international framework which requires the government to honor sovereign commitments and protect national credibility. As written a few times by myself, Pakistan has never ever defaulted on its sovereign commitments in face of a lot of question marks on our ability to pay back and negative perceptions about the country. In all, there was no shouting by the opposition during the speech nor was there rhetoric that asked for desk thumping.
Having spent a good amount of time on the context, Dr. Shaikh delineated what the budget was targeting to achieve. The main objectives of the budget are:
- protecting economic recovery
- controlling inflation
- achieving self-reliance through domestic resource mobilization
- targeted social protection regime for poverty reduction
- controlling losses of public sector entities
- reducing unemployment
- improving investment climate
- overcoming energy shortages
Coming to the details of the budget, it is not an expansionary budget but one that is realistic in nature. Size of the budget is PKR 3.259 trillion (USD 38.34 billion) against PKR 2.897 trillion last year. The biggest heads of expenditure are as follows:
- Debt Servicing: PKR 873 billion (USD 10.27 billion) or 26.78% of the total outlay
- Defence: PKR 442 billion (USD 5.2 billion) or 13.56%
- Public Sector Development Program: PKR 663 billion or 20.34%
Against a total outlay of PKR 3.259 trillion, the budget forecasts total revenue at PKR 2.574 trillion, leaving a fiscal deficit of PKR 685 billion which is 4% of the gross domestic product (GDP). It will be met through net external financing of PKR 186 billion, net non-bank borrowing of PKR 332.6 billion and banking borrowing of PKR 166.5 billion.
Another important aspect of the announced budget was the substantial increase of funds to be disbursed to the provinces by the Federal Government. PKR 1.033 trillion will be distributed to the provinces which was PKR 655 billion last year. It was interesting for me to hear “jitna Islamabad kay paas paisa kam hoga utna zaaya honay say bachay ga!”. This is exactly the reason why the PPP government has focused a lot of energies in sorting out the National Finance Commission Award.
Coming to the Revenue side, realistically speaking, though unfortunately, the taxes to be collected are heavily skewed towards the indirect modes of taxation. Out of PKR1.667 trillion, direct taxes are targeted to be PKR 657.7 billion (39.4%) while the indirect taxes of PKR 1.121 trillion shall be 60.6% of the total collection. The composition of indirect taxes is as follows:
- Sales Tax: PKR 675 billion
- Federal excise duty: PKR 153 billion
- Customs duty: PKR181 billion
The government also made a very smart move of deferring the Value Added Taxation (VAT) till 1st October 2010. This will allow the businesses and FBR to prepare for a less difficult move from the GST to VAT regime and more importantly shun chances of unnecessary commotion by people who will be opposed to such a move.
In all I would consider the budget to be realistic in nature. We are, after all, passing through a difficult phase of our existence. We are not being bailed out by other nations and institutions like economically mismanaged states in the Western Europe. Our total budget of USD 38 billion is just 3.9% of the size of the stimulus announced by the EU to bail out the troubled states. Imagine, if we were given an additional USD 38 billion in form of development program managed by the developed economies. They could come in to our country, invest their monies and technologies and try to capture a market that is of 175 million. Imagine the potential we have. How many dams we can make. How many more irrigation canals can be created. How much can we cover our energy shortages. That is our side of the story. Imagine how much wealth they could generate in Pakistan. That is for them to realize and that is what we have to portray.
The world has to realize the difficulty Pakistan is facing and the people of Pakistan have to present these hard facts to the world. We can only progress if we harness our energies towards the betterment of our country and that can only begin to happen when we present a softer and positive image of Pakistan to the world.