Coined the ‘corona-budget’ by Advisor to the Prime Minister on Finance and Revenue Dr. Abdul Hafeez Shaikh, this budget is targeted at an ailing economy which has been hit hard by the impact of the Corona virus. The Prime Minister himself has termed this a very difficult time in the history of Pakistan as the country continues to battle Covid-19 and the world sees unprecedented contraction in economic activity.

The speech was delivered by Minister of Industries Hammad Azhar who started off by saying that it is an honor for him to be delivering the second budget for the PTI under the leadership of Prime Minister Imran Khan.

GDP growth

The Government of Pakistan has revised its growth target for FY2020-21 to a meager 2.1%, while still aiming to pull the economy out of .4% contraction witnessed in the last fiscal year. However, keeping in mind that the targeted growth for last year was 4% it is possible that we may see another contraction in this fiscal year.

Total expenditure

The total expenditure mentioned in the budget was slightly higher than last year’s figure at PKR 7,136 billion. This is in line with Mr. Azhar’s announcement that the government hopes to follow an expansionary fiscal policy.

Current expenditure

Current expenditure has also been increased to PKR 6,345 billion with interest payments (PKR 2,946 billion) making the largest category of spending. It can be noted that the Defense Affairs and Services heading has also seen an increase to PKR 1,289 billion (+11%).

Development projects

The allocation for Public Sector Development Programs (PSDP’s) has decreased to PKR 1,324 billion (-18%). Of this amount PKR 676 billion has been allocated to the provinces while the remaining is under the federal PSDP.

Total revenue

The total revenue was announced to be budgeted at PKR 6,573 billion of which the provinces will account for PKR 2,873 billion. The total revenue continues to see an increase as the government aims to add more people and businesses to the tax net. Last year the FBR was not even close to reaching it’s target for revenue hence the budgeted figure this year has been revised downwards to PKR 4,963 billion.

Going forward

With the budget sessions of the National Assembly of Pakistan underway we are yet to see just how the government aims to fill the massive fiscal gap caused by Covid-19. At a time like this it is absolutely essential that Pakistan must also generate revenue from new sources.

Thailand has approved a new draft-bill requiring all foreign digital service providers to pay a value-added tax (VAT). They are just one country in Southeast Asia to introduce such measures. Indonesia and Philippines have already introduced law which will allow the respective companies to tax foreign digital service providers.

It has already been decided after talks with the IMF that the federal government will freeze the size of its expenditures. They aim to show on a global stage that the Government of Pakistan is fiscally responsible. We can expect further belt tightening and austerity measures which further crack down on imports while trying to support local businesses through the present crisis.