Budget 18-19: Govt slashes PSDP, raises defence spending to Rs1.1 trillion

Khursheed Shah, Shah Mehmood Qureshi question why 'un-elected' Miftah Ismail is presenting the budget.

The outgoing PML-N government’s newly appointed Finance Minister Miftah Ismail is presenting a sixth full-term budget in the National Assembly on Friday amid opposition protests calling for a budget covering only the remaining three months of the federal government’s tenure.

“This is a historic moment for the parliament that the 6th budget is being presented. A government cannot run for a day without the budget. The provincial government’s cannot decide their budgets without approval of the federal budget,” Ismail explained.

“We cannot interrupt the 5.8 per cent GDP growth. However the next government will have the right to make changes to the budget,” he assured the opposition.

“Today’s budget is a reflection of Nawaz Sharif’s vision. We are missing him here today.”

“In 2013 the PML-N government came to power and set up a programme for the economy. We faced certain challenges under the leadership of Nawaz Sharif. Serving the public was our only motivation,” he added.

During Ismail’s address, members of the opposition continued their protests through uninterrupted chanting. They surrounded his dias and threw papers in the air. Opposition members ripped apart copies of the budget while PML-N members encircled Ismail’s dias to keep the protesters at a distance.

The budget speech began with the finance minister recounting the government’s new tax package, through which it has lowered tax rates considerably.

Ismail said the government is using data mining and other technologies to catch tax thieves.

“We have given people one last chance to declare their domestic assets. We will catch them and prosecute them if they do not avail our tax amnesty package,” he asserted.

“Due to high economic growth in the last five years, the size of the economy has increased unusually. It has risen from Rs22,385 billion in 2013 to Rs34,396 billion in 2018. The per capita income during this time has risen from Rs129,005 to Rs180,204,” Ismail announced.

Budget 18-19

According to a copy of the Budget 18-19, the total budgeted outlay has been set at Rs5,932.5bn from Rs5,103.88bn last year ─ a 10.6pc increase over revised figure, and a 16.2pc increase over last year’s budgeted figure. The revised outlay for 17-18 came to Rs5,361bn.

The target GDP growth rate for the upcoming fiscal year has been set at 6.2pc against FY17-18’s target of 6pc.

The total tax target is Rs4,888.6bn, of which the FBR taxes comprise Rs4,435bn.

“This target will be achieved through improved tax steps and improved tax administration. The tax base is being expanded and the per cent of tax is being reduced,” the finance minister said.

The non-tax revenue target has been set at Rs1,246bn, according to a copy of the budget 18-19.

The provincial share in tax revenue will be increased from Rs2,316bn to Rs2,590bn, Ismail added.

As expected, the budget hikes current expenditures and cuts development. This is the first PML-N budget to do so. The hike in current expenditures is roughly 20pc, while development expenditure has been cut 20pc.

The share of current and development expenditure respectively in the total budgetary outlay is 80.6pc and 19.4pc. Current expenditure has been estimated at Rs4,780.4bn, while development expenditure is set at Rs1,152.1bn.

The size of the FY18-19 PSDP has been estimated to be Rs1,650bn, of which Rs850bn has been allocated to the provinces, while Rs800bn has been allocated to the federal government.

Under the PSDP, Rs47bn has been allocated to the Higher Education Commission, Rs37bn for basic health and Rs10bn for the PM’s Youth Programme.

Development expenditure outside the Public Sector Development Programme (PSDP) has been estimated at Rs180.2bn for FY18-19, which is 18.4pc higher than FY17-18 estimates.

Bank borrowing in the coming fiscal year is expected to be 2.6 times higher than last year’s budgeted figure, although the increase is not reflected in borrowing from the State Bank of Pakistan.

The government also plans to float Sukuk bonds while borrowing from local banks is expected to be significantly higher than FY17-18.

The defence budget has been set at Rs1,100bn from a revised budget estimate of Rs999bn in the previous year ─ 18.5pc of the total budgeted outlay, while the PSDP has been slashed to Rs800bn for FY18-19.

The government also intends to restrict the overall fiscal deficit to Rs1890.2bn or 4.9pc of the GDP, down from the revised estimates for the year 2017-18 which stood at 5.5pc, and inflation to below 6pc, Ismail said.

The government estimates forex reserves to come to about $15bn in FY18-19.

The target tax to GDP ratio is 13.8pc, while the target net public debt to GDP ratio 63.2pc, the finance minister announced.

“The objective of the medium term macroeconomic policy, besides improved economic growth, is to correct the balance in the external account,” Ismail said. “The fiscal deficit will be reduced in the next three years and the environment for investment will be improved.”

“The government will continue investment in social protection and the Benazir Income Support Programme, and will take steps for the underprivileged communities through targeted subsidy schemes. Rs125bn has been allocated to the BISP, while Rs189bn has been set aside for total subsidies. Rs10bn has been proposed for PM’s Youth Scheme,” he said.

Agricultural sector

Agricultural production is slated to increase, Ismail said, with the government intending to continue implementing an agricultural policy in FY18-19 “until we end the tradition of subsidies”.

Estimated loans to the agriculture sector will increase to Rs1,100bn, he said.

“A second green revolution is needed for advancement in the agriculture sector,” the minister explained. “The next federal government will leave all decisions regarding subsidies to the provincial governments while the federal government’s focus will be on providing a favourable environment for research and development, an increase in production, access to markets and improvement in technology.”

“I am happy to announce that while we had proposed a 3pc sales tax on fertiliser, the PM has approved sales tax of 2pc only on the recommendation of Sikandar Bosan, the food security minister.”

The 2pc reduction in GST on agricultural machinery has been proposed from 7pc to 5pc, while a relaxation in dairy and livestock taxes has also been proposed.

“Pakistan is the 5th largest cotton grower in the world but lags behind in exports of cotton products,” Ismail observed. “In order to improve the quality and quantity, the subject of cotton has been handed over to the Ministry of Food Security and Research from the Textile Ministry.”

“The govt is starting an Agricultural Support Fund with Rs5bn which will support research on new kinds of seeds and plants in order to increase agri output,” the minister said, adding that another Rs5bn had been set aside for the promotion of agri technology.

“The government wants to introduce renewable energy in all sectors,” Ismail added. “It is proposed that the 16pc duty on charging stations for electric cars be ended.”

In the aftermath of the 7th NFC, the provinces have been issued an extra Rs2,500bn in eight years, and the federal government will have a reduced share in the NFC, he said.

Karachi package

The government announced a Rs25bn special package for development in Karachi.

A large-scale desalination plant will be set up in Karachi to end the city’s water woes, Ismail said.

Rs5bn will be allocated for the construction of roads, fire brigades and bridges in the coming fiscal year. Rs8bn will be set aside for expansion of the Expo Centre, he added.

Packages for children

A special package called the 100,100,100 programme focusing on children’s development was announced by Ismail. Under the package, the government is targeting 100pc admission, attendance and graduation of children in schools.

The government will pay for the transportation of female students to school, he added.

“This is a promise made by the Parliament to the people of Pakistan. We have failed for the past 70 years, but it will not happen anymore, although education is a provincial subject,” Ismail asserted.

Another special package amounting to Rs10bn ─ along with a supplementary grant ─ was announced for children’s health. “40pc of children experience stunted growth,” the finance minister said. “It will be tolerated no more,” he said, adding that stunting would end by 2020. “This is the prime minister’s promise.”

PM’s Health Programme

The PM’s National Health Programme, under which 3,000,000 families across Pakistan are already receiving coverage, will be extended to all districts in the country and will help us achieve the Sustainable Development Goals, Ismail announced.

“A survey will be held every two to three years to provide us better statistics,” he added.

Entertainment industry

The customs duty on import of drama and film-making equipment is being reduced to 3pc, and sales tax is being brought down to 5pc.

A revolving fund will be set up to financially support the film industry and needy artists, Ismail said.

Review of PML-N’s performance

“Today we are the 24th largest economy in the world,” Ismail told the lower house.

“The GDP growth rate was 5.4pc last year ─ it has now grown to 5.8pc, the highest in 13 years,” he recalled.

“In the last five years, inflation has been kept below 5pc which was up to 12pc when we took over. The budget deficit will remain restricted to 5pc this year,” he said.

“The State Bank policy rate was 5.7pc which was the lowest in decades, coming down from over 9pc. The lowest interest rate in history has brought an increase in businesses” he explained.

“Exports have been under pressure… Imports have increased 17pc because of high machinery imports,” he said, adding that the current account deficit had increased Rs12bn in the first nine months of FY17-18.

“The government has made all efforts, and I am sure that foreign exchange reserves will be higher in June than they are today. In the ongoing year, foreign investment has risen from $1.9bn to $2.1bn.”

Opposition’s reservations

The opposition wants the government to present a budget only for one quarter, saying that the rulers cannot snatch the right of deciding a budget from the next government expected to come into power in August, after the general elections.

“I understand the pain for democracy and Constitution,” said Prime Minister Shahid Khaqan Abbasi while addressing the Parliament. “We want to present the budget for continuity of the system. Whichever party comes can change the budget.”

Addressing the opposition’s reservation about Miftah Ismail, the newly appointed finance minister, presenting the budget, he said: “It is the cabinet’s decisions and nothing unconstitutional about this.”

‘No right to present full-term budget’

At the outset of the session, Opposition Leader in the National Assembly Syed Khursheed Shah protested against the outgoing PML-N presenting a full-term budget instead for the remaining three months of its tenure.

Opposition Leader in the National Assembly Syed Khursheed Shah speaks in National Assembly on Friday. — DawnNewsTV
Opposition Leader in the National Assembly Syed Khursheed Shah speaks in National Assembly on Friday. — DawnNewsTV

“Unfortunately, the government is snatching the right of the next assembly with today’s budget,” said Shah. “My wish is that whichever party wins the elections, has the right to present the budget.”

“This government has no ethical right to present the budget for the entire year.”

“This mandate is given when a person comes into Parliament after being elected,” he continued. “What pains me is that Nawaz Sharif champions the narrative ‘vote ko izzat do’ [respect the vote], yet you [PML-N] are destroying the honour of vote.”

“You had an elected minister, Rana Afzal, but you brought in a person with no mandate through wrong interpretation of the Constitution,” said Shah referring to the appointment of Miftah Ismail as the finance minister on Friday morning.

“I always say respect the Parliament and make it supreme; but once again, you are making decisions outside the Parliament. This is the first time an un-elected person is presenting the budget.”

“Could PM Abbasi not have presented the budget? Even the chief minister has presented budget in the past,” pointed out Shah.

Shah Mehmood Qureshi of Pakistan Tehreek-i-Insaf (PTI) shared the same sentiments as Shah, saying: “Instead of an elected minister, you [PML-N] are giving the mandate to present the budget to an un-elected person.”

“A new tradition is being set,” he alleged. “The leader of the opposition has said there is no moral justification for the government to present the full-year budget.”

He highlighted that the budget being presented had not been endorsed by the National Economic Council (NEC). “Three CMs — of Sindh, KP and Balochistan — walked out from the meeting. What kind of democracy and government is this where three provinces are strongly expressing their distrust of the Public Sector Development Programme (PSDP), yet you want to endorse it.”

Speaker Ayaz Sadiq urged the opposition leaders to keep their statements short so that the “group picture of MNAs” could be taken while there was still light.

This is a developing story that is being updated as the situation evolves. Initial reports in the media can sometimes be inaccurate. We will strive to ensure timeliness and accuracy by relying on credible sources such as concerned, qualified authorities and our staff reporters.

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