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It remains to be seen if the targets set in the mini budget prove to be too ambitious

By Mehtab Haider

The government has finally taken the crucial decision on the political and economic status quo by unfolding the mini-budget and releasing US national Raymond Davis. These steps , it is believed, would pave the way for far-reaching impacts on PakistanÕs struggling economy and ensure external inflows from multilateral and bilateral creditors to keep budget deficit within the desired limits.

The government took additional measures such as cutting down expenditures by Rs120 billion and imposing new taxes of Rs53 billion through controversial Presidential Ordinances to curtail fiscal deficit below 5.5 percent.

With corrective measures on economic front coupled with release of Raymond Davis, the economic team of the PPP government is expecting that multilateral creditors, including the World Bank and Asian Development Bank will extend budgetary support of over $1 billion before the end of the ongoing fiscal year and that the US would release a maximum amount out of the total commitment of $1.5 billion under the Kerry Lugar Law.

Economists say the government should have taken these steps much earlier with the aim to improve budgetary conditions. Also, the additional measures of Rs173 billion are quite ambitious as the governmentÕs target to generate Rs90 billion during the last three and a half months, including generating Rs37 billion through improving administration and efficiency of FBR and Rs53 billion by imposing 15 percent flood surcharge, etc, might not yield the desired results.

Former Economic Advisor, Dr Ashfaque Hassan, who is currently serving as Dean NUST Business School (NBS), tells TNS that one should appreciate that the government has taken corrective measures though after a delay as these should have been taken soon after floods struck the country and caused a loss of over $10 billion. ÒThe economic team lost the opportunity for taking additional revenue measures in October or November 2010 that could have beneficial economy of this country,Ó he says. Ashfaque also raises doubts about the FBRÕs ability to achieve Rs1600 billion revenue target for June 2011, saying when the tax authorities failed to achieve the desired results during the last eight months, how would it be possible for them to get all targets in the remaining months?

Deputy Chairman Planning Commission, Dr Nadeem Ul Haq, is optimistic that the government took corrective measures after doing a lot of homework and the budget deficit would be curtailed at 5.3 percent of GDP for the ongoing financial year. He says the envisaged budgetary targets are quite achievable and financial discipline would achieve the desired results. The government aims at increasing revenues by improving administration of the FBR to the tune of Rs37 billion and by imposing new taxes to fetch Rs53 billion in the last three and a half months of 2010-11.

Pakistan and the IMF have assessed that the FBR can collect Rs1510 billion and it requires additional measures for netting Rs90 billion for displaying the desired target of Rs1600 billion by June 30, 2011. To achieve the target of Rs37 billion through improving administration of the FBR, tax authorities have identified 0.7 million potential taxpayers who are not included into the tax net. The FBR has estimated that it can collect Rs3 billion by identifying 0.7 million new taxpayers but it is a lengthy process that will take time.

The additional revenue measures have been taken in three major taxes, including one-time 15 percent surcharge on income tax that would yield Rs20 billion, abolishing crucial sales tax exemptions for generating Rs25billion and hiking excise duty up to 2.5 percent to raise Rs8 billion in the remaining period of fiscal year 2010-11. ÒWe will generate Rs53 billion in three major taxes in the remaining period of the current fiscal for achieving the revised target of Rs1,600 billion,Ó Member FBRÕs Inland Revenue Service (IRS), Khawar Khurshid Butt, says while talking to TNS. He is of the view that the envisaged target is not ambitious and the FBR possesses the capacity to achieve the desired results.

The Presidential Ordinances, to this effect, has been issued for imposing 17 percent GST on tractors and jacking up the rate of sugar up to Rs55 per kg from earlier rate of Rs28.88 per kg for imposing 8.5 percent GST. In order to slash down expenditures by Rs120 billion, the government axed development programme by cutting it down to Rs100 billion, revising downward the Public Sector Development Programme (PSDP) from Rs280 billion to Rs180 billion for the current fiscal year.

It has also been decided that the allocation meant for petrol and other entitlements for bureaucrats and parliamentarians will be slashed down.

Ban on recruitments and purchase of new cars, furniture, air-conditioners and computers will save another Rs20 billion in the current fiscal year. The government has also banned unnecessary foreign tours, freezing supplementary grants and reducing all kind of other non-essential expenditures to get the desired results.

Federal Secretary Finance, Dr Waqar Masood, said in a press conference recently that there is no sacred area in terms of cutting down the expenditure side as the full support extended by President, Prime Minister and Pakistan army paved the way for achieving the desired results. The budget deficit, according to him, was projected in the range of over 8 percent of GDP equivalent to Rs1,376 billion for the current fiscal year at one stage which was curtailed by bringing it down to below 5.5 percent of GDP by taking measures both on expenditure and revenue mobilisation sides.

The government has increased prices of POL products by 5 percent and electricity tariff by imposing 2 percent additional surcharge with the aim to cutting down on energy subsidies in the current fiscal year. Officially, the government has passed on only 5 percent burden to domestic consumers in terms of POL products against an increase of 26 percent in prices of international market. The government has absorbed around Rs20 billion by not passing on full burden of POL products in last few months.

Despite raising tariff by 100 percent during the last three years, there is still a gap of 16 percent between the cost of power generation and receivable of cash bleeding the power sector. There is a need to analyse the whole sector in detail and introduce desired reforms to improve the crucial sector.