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Govt unveils Rs 2.4tr deficit budget

SAMAA | - Posted: Jun 13, 2009 | Last Updated: 11 years ago
SAMAA |
Posted: Jun 13, 2009 | Last Updated: 11 years ago
Govt unveils Rs 2.4tr deficit budget

Staff Report

ISLAMABAD: The Government of Pakistan has presented a 2.4 trillion rupee deficit budget for the next fiscal year, 2009-2010, in the National Assembly. Financing the deficit will mostly depend on Pakistan's international friends.

The budget was presented by State Minister for finance Hina Rabbani Khar, who became on Saturday, the first woman to make the annual speech.

The overall fiscal deficit of Rs 722.5 billion would be 4.9% of GDP and would be met through external financing of Rs 264.9 billion and domestic financing of Rs 457.6 billion.

The total expenditure is estimated at Rs 2897.4 billion and total revenue is estimated at Rs 2174.9 billion.

Afterwards, while speaking to the media outside parliament, she said that her speech had very clearly focused on the challenges that lay ahead. She cautioned that one couldn't completely assess the performance as they fiscal year had not yet ended. A proper review would only be possible afterwards.

Pakistan is likely to receive external resources equivalent to 1.2% of its GDP (Rs 178 billion) from pledges made at the donors conference at Tokyo. It expects resources equivalent to 0.3% of the GDP (Rs 48 billion) for expenditure on internally displaced persons. In essence, the real deficit would be 3.4% of GDP.

The core budget of the federal government estimates net revenues of Rs 1,377.5 billion with a current expenditure of Rs 1,699.19 billion. Development expenditure is estimated at Rs 783 billion against a revised estimate of Rs 421.9 billion, an increase of 85%.

The tax-to-GDP ratio would be improved 0.6 percent in the next financial year.

Ral GDP is expected to grow by 3.3 percent and by four and 4.5 percent during fiscal years 2010-11 and 2011-12, respectively, she added.

She said that growth would bank on agriculture (expected to grow 3.8%; manufacturing 1.8%; and services 3.9%.

For 2009-10, the inflation target is 9.5 percent, which will be brought down to 7 and 6 percent during 2010-11 and 2011-12, respectively. A targeted decrease in current expenditure to 15.3 percent of GDP in FY 2009-10 and 14.7 percent of GDP in 2010-11, from the elimination of unproductive subsidies, is planned in order to maintain the fiscal deficit at sustainable levels.

Total revenue will grow by 15.7 percent and Federal Board of Revenue collection is projected to grow by 16.8 percent. Tax-to-GDP ratio will be 9.6 percent, with measures, as against 9 percent during 2008-09. Revenue as a percentage of GDP is projected at 14.7 percent in 2009-10 and will increase to 15.1 percent during 2010-11.

The government has set aside Rs 646 billion for development and 342 billion rupees for defence spending. “The war on terror has already cost us over $35 billion since 2001-02 in economic costs,” said Khar in her speech. “We now face the prospect of incurring huge costs on account of counter-insurgency expenditures.”

She said that the government has allocated Rs 50 billion for the relief, rehabilitation and reconstruction for the 2.5 million displaced people.

The government has increased the allowances of the armed forces personnel deployed in the western theatre. This is equal to one month's basic pay with effect from 1st July, 2009.

This benefit be extended to the entire armed forces from 1st January, 2010.

Khar said that while discussing the economy this government had inherited, they had felt that a high-level of artificial growth could not be sustained. The government now believes that sustainable growth is only possible through investments in the real sectors of the economy – agriculture and industry. She said that unfortunately, they were neglected in the past.

“Instead growth was fuelled through high consumption and extensive luxury imports and those too financed through external borrowings,” she said. “No wonder the fiscal deficit mounted to 7.6% of GDP, the current account deficit became unmanageable, there was a run on foreign exchange reserves and the stock market crashed. More importantly, inflation started to rise steeply and peaked at 25% in October 2008. In the face of these developments the economy suffered but the poor of Pakistan suffered the most.”

PUBLIC SECTOR FUNDING

The new budget has the highest-ever public sector development funding. Khar announced that the PSDP would get Rs 646 for Financial Year (FY) 2009-10.

An amount of Rs 421 billion has been allocated for the federal government projects and Rs 200 billion have been earmarked for the provinces to be spent through their Annual Development Programmes (ADPs).

Also, Rs 25 billion has been allocated for Earthquake Reconstruction and Rehabilitation.

Thus, the overall size of PSDP for 2008-09 stands at Rs 646 billion, however, this development outlay shall be subject to a budgetary announcement in the finance bill 2009-10 to be approved by parliament.

A major initiative in the infrastructure sector is to build small and large hydro power projects and dams, including the Diamer Basha dam, to overcome the energy crisis.

The government has allocated about 67.59 billion rupees in PSDP 2009-10 for the water and power division with the special aim of building water reservoirs and overcoming the energy crisis.

PSDP 2009-10 has been developed to ensure equitable and sustainable economic growth. During fiscal year 2008-09, Pakistan’s main emphasis was to ensure economic stability after a period of policy inaction had seen a deterioration in the country’s macroeconomic indicators.

The government is hopeful that a large part of PSDP 2009-10 will re-enforce the move towards economic recovery and the annual plan has forecast GDP growth of 3.3 percent for FY 2009-10. The size of the PSDP will also help the government achieve or exceed this GDP growth rate.

REACTION

Former trade minister Jehangir Tareen said that the budget had been presented in extremely difficult circumstances. “I know she made widespread consultations with [stakeholders] and experts,” he said while speaking to SAMAA afterwards.

He pointed out that the PPP government had left privatization by the wayside. He gave the example of the Pakistan Steel Mills, which was supposed to be privatized in two stages. The work for the second stage had not been done and there was news the mills were suffering a loss of 10 billion rupees.

AGENCIES ADD: Fighting a Taliban insurgency, mired in recession and kept afloat by an IMF emergency loan, Pakistan announced on Saturday a budget for 2009/10 that underlined its dependence on foreign financial support.

The civilian government, which came to power 15 months ago to bring down the curtain on almost a decade of military rule under former army chief Pervez Musharraf, has sought international support to stabilise its economy, fight the insurgency and fund development needed to make it harder for militants to recruit.

U.S. officials, worried that their nuclear-armed Muslim ally could descend into chaos, have welcomed the army's offensive against militants in the Swat valley and adjoining areas northwest of Islamabad, which was launched in late April.

On Thursday, the U.S. House of Representatives approved tripling aid to about $1.5 billion a year for fiv

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