Riphah Institute of Public Policy, Riphah International University has organized two pre-budget sessions to give input to the federal government for the forthcoming budget in respect of fiscal year 2020-21. The aim of the Pre-budget seminars is to generate knowledge of the economy focusing current and fiscal deficit and provide the feedback to legislators on some key thematic areas including; The Import/Export, manufacturing, Services and Agriculture sector by engaging the academicians, professionals, business community and relevant stakeholders. The proceedings of the sessions will be translated into legislative language to plead at the two houses of the parliament. Four to five legislators have also been taken onboard to put our proceedings in National Assembly and Senate of Pakistan.
Considering a societal and ethical responsibility consortium of universities and research organizations across Pakistan is constituted so that Academicians, Scientists, Social scientists, experts, practitioners, Government representative, private sector(industries) and civil society (following triple helix model) had shared their expertise and deliberations in the pre-budget seminar to explore the ways and means to address the challenges associated with budget preparation particularly in the COVID-19 era and work out viable solutions for preparing a viable national budget for the fiscal year 2020-21. The speakers who joined the pre-budget session were the key players holding senior position in their respective sectors including; Chairman Baig Group of Industries, Advisor, Karachi Chambers of Commerce & Industry, Federation of Pakistan Chambers of Commerce Industry-FPCCI, Joint Executive Director, Sustainable Development Institute for Pakistan, Director Engro-Pakistan, CEOs and Managing Directors from the Fertilizers and International Trade, Agriculture trade Scientists, Economist and Business Analyst from Karachi University and Stock Exchange.
Highlight of the proposed Budget 2020-21:
• Pakistan Tehreek-i-Insaf, will present its second federal budget for the fiscal year 2020-21 in the Parliament on June 12, 2020,
• Govt faces serious challenges to support day to day expenditures after paying defence and debt servicing bills from available resources, as the fiscal budget 2020-21 is being prepared on the basis of the existing National Finance Commission (NFC) Award (with ratio of 57.5 per cent and 42.5 per cent among the provinces and the federal government).
• The federal government has prepared draft for Rs7,570 billion federal budget 2010-21.
• Tax collection target in the budget is likely to be Rs4,500 billion while development budget is expected to be Rs530 billion.
• The budget is likely to have a deficit of up to Rs 3,000 billion.
• Government has decided to increase total volume of next budget by 10%
• GDP: In 2018, before the PTI-led government assumed power, the GDP growth rate was nearly 6 percent, to and in 2017 and 2016 it was about 5.55 percent, whereas in 2019-20 it was about 2 % and now it has been projected negative 1.5 percent.
• Pakistan plans to seek $15 billion gross foreign loans in the next fiscal year aimed at servicing its maturing external public debt and building official foreign exchange reserves in the absence of non-debt creating inflows.
• The Pakistan Tehreek-e-Insaf government, like its predecessor, has also remained unable to fully capitalize non-debt creating inflows like exports, remittances and foreign direct investment.
• Rs1,000 billion is also expected to be allocated for dealing with coronavirus pandemic and for providing relief to the business community.
• Salaries and pensions of government employees are likely to be hiked by 20 percent.
• The budget is expected to reduce customs and excise duties on imported machinery by up to 3%.
• All leading indicators in the beginning of calendar year 2020 were suggesting a slowdown in growth. The output of large-scale manufacturing contracted by nearly 3.5 percent from July 2019 to January 2020. The large-scale manufacturing sector accounts for around 50 percent of industrial output and if it contracts the entire economy shivers. The same applies to rising inflation that was unprecedented in many decades, and so was the rise in interest rates that hit a whopping over 13 percent benchmark.
• The growing COVID-19 has further added the financial crises particularly for the developing countries to keep economic wheel moving to ensure socio-economic wellbeing of the country.
Policy Recommendations for Budget 2020-21:
• Projected growth rate of Pakistan by IMF after COVID-19 is -1.5% which is projected between 2-3% before covid-19 so first measure need to be taken in the budget must focus to void the negativity by focusing on incentives and measures that will accelerate our growth from -1.5% and we will remain in 1 or may be half.
• Manufacturing sector growth already face 54% shortfall in the month of April we faced approximately 54% shortfall due to lockdowns around the world and we are about to face the fall of growth rate along with the unemployment of 18 million people and poverty touching 65%, this is the time to find out ways and means necessary for survival.
• Manufacturing sector is one of the main sector of any economy providing highest employment based on a cycle including imports and exports. So, if we want to boost our manufacturing sector than should give optimum utilization to this sector by encouraging local products and focus on sectors that have still high demands like food, fisheries and on IT sectors.
• Government should come in front to lead the industries that striving hard to transform themselves according to the world needs.
• Government protection is the only way to secure SMEs and MSMEs that are not only the part of our local Manufacturing but also contribute in exports.
• Our increase in exports are only $5b in past 5 years, because we are not competitive enough in international market due to our high cost of production. So government should focused on the policies which reduce cost of production by reducing or eliminating duties on import led exports and unnecessary compliance.
• Government should work on Rationalization of our compliance system that will reduce cost of doing business. There is a strong need to identify the industries which are excluded to access to facilities announced by Government by finding the gaps.
• Instead of announcement of risk sharing facility by ministry of finance commercial banks are reluctant to provide loans to SMEs due to the high risk in feasibility and indefinite time to retain their cash flows so, there is a need to build the confidence between ministry, SBP and Commercial banks.
• MSMEs and some SMEs lacks information regarding Government facilities and the information cost to these organizations are very high so, chambers and association bonding should be improved the issue.
• In the upcoming budget it is suggested that direct taxation including corporate taxes must be reduced and in line with other countries to minimize current and future burdens on SMEs as most of developing countries offer less than 30% while Pakistan charge more than 35%.
• Government should ensure the availability of announced facilities to all SMEs as banks are reluctant Government must attach these credit facilities with FBR as electronic data of all industries are available at FBR and after reviewing the tax profile of industry loans are allocated.