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Budget 2020: Uncovering the glitches

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June 12, 2019 (MLN): The Federal Budget for the fiscal year 2019-2020 was presented by Minister for Revenue, Hammad Azhar on June 11, 2019.

While many are lauding the budget for being both stringent and people-friendly at the same time, it is still being subjected to extreme scrutiny, discontentment and criticism, with some even going to the extent of calling it a slap on the face of economy.

Various analysts have termed the targeted tax collection of Rs. 5.8 trillion as unrealistic, impractical and exceedingly optimistic, mainly for the reason that no clear strategies have been set or defined as to how this target will be achieved.

Having said that, it appears that attaining individual line item targets seems impossible even though the overall fiscal deficit target of 7.1% gives the impression of being achievable.

There was already a lot of adverse hype towards the elimination of SRO 1125 before the budget was even announced, as manufacturers feared a reduction in exports by approximately 30%.

Despite the country facing static exports, the budget paved way for complete withdrawal of SRO 1125 as the government believed its removal would only affect those exploiting the facility to evade government revenue. In spite of this, analysts believe that this measure may not go down well with the country’s trade deficit.

The measures introduced for salaried people are not being received with much appreciation, as most of the employees are labeling them as inflationary in nature. The salaried class falling in the upper slabs will definitely be worse off in the upcoming fiscal year, as these measures largely target people falling in this category.

Keeping everything in perspective, these people aren’t to be blamed for being unreceptive towards the budget as what may look like an increase in salaries is equivalent to almost no increase when taking into account overall inflation trends and economic growth.

The federal budget has introduced tax measures that heavily target industrial and corporate units, which is deemed to result in an economic slowdown in the short-run. This, in turn, is expected to result in inflationary pressures and higher interest rates. Keeping this in view, a report by Al Habib Capital Markets suggests that an increase in ‘Interest payments’ by 1.78x is expected during FY20. The report also highlights another important factor that hints towards a higher than current interest rate regime during FY20.

The profits of State Bank of Pakistan are expected to be relatively higher in FY20, which suggests that the Central Bank will be lending at higher interest rates in the upcoming fiscal year, thus earning higher profits.

Lastly, the government officials have been accused of preparing the budget largely on the basis of IMF conditions. These officials probably saw it coming as the opposition has been using the IMF weapon for quite a while now. When asked to elaborate upon whether the budget was prepared in line with IMF measures, Prime Minister’s Advisor on Finance Abdul Hafeez Sheikh said that it was prepared with the sole intention of stabilizing the economy and putting it back on track, therefore it didn’t matter how it was being viewed by different parties.

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Posted on: 2019-06-12T17:34:00+05:00

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