- PTI says Budget 2023-24 fails to provide a way out of the crisis
- PTI says FY2022-23 under PMD government was an epic disaster
In its response to the Federal Budget 2023-24 presented by the Finance Minister Ishaq Dar on June 09, the Pakistan Tehreek-e-Insaf (PTI) has lambasted the ruling regime for pushing to the Country to the verge of disaster and resorting to political gimmicks with no money in the account.
PTI’s response on Federal Budget 2023-24
Epic failures in Ishaq Dar’s previous three tenures
- 1998 – Debt restructuring and freezing of foreign currency accounts
- 2008 – Failed to get IMF support, 40% devaluation of currency; over 20% inflation
- 2013-2018 – Exports crashed 12% for four consecutive years and CAD of US$ 19 billion
This time he has broken all his previous records of incompetence and in just one year
- Crashed the economy with 0% growth, from 6.1%
- Fueled record inflation 38%, with food inflation at 48% – breaking record of last 75 years
- Currency is free falling and has depreciated by Rs 120 since the Vote of No Confidence.
- Government debt has increased Rs 15.6 trillion between April 2022 to April 2023
- Deliberately derailed the International Monetary Fund (IMF) program and failed to secure financing from friendly countries, multilateral
- The State Bank of Pakistan’s (SBP) reserves declined to US$ 3.9 billion, less than even one month of import cover
The Finance Minister Ishaq Dar does not even know the difference between nominal GDP and GDP calculated on the basis of purchasing power parity (PPP) – throwing ridiculous numbers to hide his epic failures.
The FM does not even understand the difference between debt restructuring and debt re-profiling.
Is Ishaq Dar fit to hold this portfolio?
Economic Survey 2022-23 reaffirms strong performance of PTI government
The Pakistan Democratic Movement (PDM) government has once again reaffirmed that economic performance of the PTI government was the best in the last 2 decades and the economy was growing at 6.1% and record jobs were created.
PTI is the only government since 2007 which achieved 2 consecutive years of 6% growth; despite challenging global environment due to COVID and commodity super cycle.
Real GDP growth for FY2021 and FY2022 has been upgraded to 5.8% (from 5.7%) and 6.1% (from 6%).
Growth was broad based with all productive sectors showing remarkable performance.
Growth under the PTI government was broad-based with all sectors of the economy posting record output.
Agriculture sector growth of 4.3% in FY2022, is the highest since FY2005. Major crops registered growth of 8.2% which is also the highest since FY2005. This was driven by the National Agriculture Emergency Program with a focus on upgrading irrigation systems and helping farmers achieve timely payments.
The large-scale manufacturing sector posted growth of 11.9% in FY2022, which is even higher than the 11.5% growth in FY2021. This is the first time since FY2005 that the industry posted 2 consecutive years of more than 11% growth. This was driven by record $ 32.5bn exports and 22% growth in credit to the private sector in FY2022.
Large scale manufacturing (LSM) posted growth of 11.5% in FY2021 and 11.9% in FY2022 under the PTI government with record increase in exports and credit growth to the private sector.
The Pakistan Economic Survey 2022-23 also reconfirms that despite COVID, 5.5 million jobs created in first 3 years of PTI government. On average 1.84 million jobs created per year under PTI, compared to only 1.1 million under PML-N (2013-2018) and PPP (2008-2013).
In 5 years term, we would have delivered 10 million jobs, as promised by Imran Khan.
It was this success which led to the PDM government using all means necessary to overthrow Imran Khans government and bulldoze all progress made in the last one year.
Also Read: Economic Performance of PPP, PML-N & PTI since 2008
FY 2022-23 has been an epic disaster
The Pakistan Economic Survey 2022-23 highlights the scale of the devastation unleashed by PDM regime
Inflation has broken all records of last 75 years, rising to 38% in May 2023. Average inflation under PTI government was only 12.2% in FY2022.
GDP growth has collapsed to 0%, after two years of nearly 6% growth
LSM posted 8% contraction in FY2023 due to regressive tax measures and import restrictions implemented by the PDM regime.
Agriculture sector was hit by floods and the rising cost of inputs (energy, fertilizer, transport etc). Major crop production declined 3.2%, compared to sustained 4% growth in the last three years.
Whereas in the current fiscal year, power generation has declined 10% during Jul – Apr FY2023 but growth according to the PDM government has doubled to 6%. Electricity production
This growth is even more remarkable considering that the consumption of primary fuel for transportation declined; diesel sales fell 28% and petrol sales fell 17% during the first 10 months of FY2023.
While the economy has been thrown into a free fall under the PDM government, the central government debt has skyrocketed by Rs 15.6 trillion in just thirteen months. The scale of this is truly shocking and showcases the reckless policies pursued by the PDM regime. To give perspective, the central government debt increased by Rs 18.3 under the entire tenure of the PTI government.
Similarly, the circular debt has increased by Rs 500bn in the first nine months of the PDM government, whereas it registered a decrease of 1% in FY2022 under the PTI government. This is despite increasing power tariffs for all consumers and removing subsidies for the industry. The much-touted experienced team of the PDM government has failed on nearly all accounts.
Dr. Hafiz Pasha estimates that the economy posted a contraction of 3% under the PDM government with 8 million workers becoming unemployed in FY2023 and the unemployment rate rising to 10%.
The destruction caused by the PDM regime will lead to nearly 18 million households falling below the poverty line, with Dr Pasha stating that ‘the absolute increase in the number of poor has probably never been seen before’.
Federal Budget 2023-24 fails to provide a way out of the crisis
The targets announced in the FY2024 Budget are not realistic and the deficit will be significantly higher at Rs 8.5 trillion, as compared to the Budget target of Rs 6.9 trillion
We estimate revenue shortfall of Rs 600 billion due to lower growth and lack of measures to broaden the tax base.
We estimate an overrun in expenditures by around Rs 1 trillion due to impact of increase in salaries and pension and higher debt servicing costs.
Budget will fuel inflation
With record breaking inflation of 38%, no relief measure for the masses
In FY23 inflation target was 11.5% but the govt missed the target
PDM government forecasts inflation to average 21% in FY2024, only marginally lower than 29.2% in FY2023>
However, the assumption is based on no depreciation in the currency. This looks overly optimistic considering Dar has deliberately derailed the IMF program.
GST was increased to 18% in Feb 2023, with some items it was raised to 25%. The government has not reversed this inflationary tax measure.
Higher government spending and higher deficits are the primary cause of inflation expectations.
Growth outlook
Target was 5% but the PDM government achieved 0.3% growth in FY23.
The decline in manufacturing output is due to regressive tax measures and import restrictions.
The SBP policy rate at 21% is the highest since 1998 and had led to a sharp decline in credit to the private sector.
Exports have declined 13% as the industry is unable to procure raw materials and the rising cost of doing business.
In this environment and given the Budget FY24, we are unlikely to see any pick up in manufacturing activity.
The 3.5% growth target for FY 2023-24 looks overly optimistic.
Predatory Tax policy; targets to be missed
When the PTI government was removed in FY2022, the Federal Bureau of Revenue (FBR) tax collection had increased to Rs 6.1 trillion, a growth of 30% (inflation of only 12.2%). Under the PDM government, the FBR is unlikely to even achieve the Rs 7 trillion mark in the current fiscal year.
The collapse of the industry and restrictions on international trade have led to a sharp slowdown in tax collection, with FBR revenues growing at only 16% (despite average inflation of 29.2%).
The government missed tax targets for FY2023 with FBR revenues collection at Rs 7.2 trillion against the Budget target of Rs 7.47 trillion.
Even this looks optimistic because, in the first 11 months of FY23, FBR collection has increased by 16% only – indicating that even Rs 7 trillion will be difficult to achieve.
This is despite 29% inflation, with real growth in tax collection negative 13%.
The low tax collection in FY23 is also despite the predatory tax measures taken by the PDM government including raising GST rates to 18%, increasing the tax burden on salaried individuals, and imposing a super tax on listed companies.
The FY2024 FBR target has been set at Rs 9.2 trillion, indicating an increase of 28% from the estimates of Rs 7.2trn. Actually, the FBR will need to achieve 30% growth to meet this target, indicating there is likely to be a significant shortfall of Rs 600bn.
The predatory tax regime has been further expanded and now the super tax regime has been expanded to include all registered taxpayers including SMEs. This is criminal considering the difficult economic environment and will lead to significant unemployment.
Key reforms initiated under PTI including retail sector POS, Track & Trace system for big industries, and Single Window customs facility have all been slowed down deliberately.
More than 43 million potential taxpayers identified by FBR have not been targeted while the government is busy imposing regressive tax measures on the public including raising GST tax rates.
Instead of efforts to broaden tax base, the PDM government has again given big relief to the retail sector and failed to introduce taxes on the big agriculturist and real estate sector.
Expenditure overrun risks remain high
The FY23 expenditure targets were all missed by a significant increase in debt payments, subsidies, and the running of government.
Total expenditure increased to Rs 11.1 trillion against the FY23 Budget target of Rs 9.6trn, an overrun of Rs 1.5 trillion. Even this number is on the lower side and actual expenditures are likely to be Rs 11.7 trillion – indicating an overrun of Rs 2trn.
This overrun was despite the PSDP spending reduction to Rs 562 billion against the budget target of 871 billion, a decline of Rs 300 billion.
In the Budget FY2024, the government targets expenditure of Rs 14.46 trillion, an increase of 30%. However, clearly, the government has underestimated the expenditure requirements.
Our estimates suggest expenditures overrun of nearly Rs 1 trillion due to higher debt servicing costs (Rs 500 billion) and an increase in salaries and pensions (Rs 500 billion).
Provincial surplus is ambitious
The government has estimated a provincial surplus of Rs 650 billion in FY24, which is 42% higher than the revised estimates for FY23.
This assumption seems highly optimistic considering that the actual provincial surpluses in the last three years is significantly lower.
Financing plan lacks credibility
The external sector vulnerabilities are the biggest risk facing the economy. The framework outlined for FY24 budget seems unrealistic.
The Current Account Deficit (CAD) is projected to increase by 62% to US$ 6 billion, from US$ 3.7 billion in FY23. This is based on the assumption of exports of US$ 30 billion (7% growth) and remittances of US$ 30.5 billion (8% growth).
In the current fiscal year both remittances and exports have declined 13% due to the policies of the PDM government. The trend is unlikely to reverse unless we adopt a market-based exchange rate regime and provide regionally competitive tariffs for exporters.
The Budget FY2024 was a critical factor for the IMF and the government has deliberately sabotaged efforts to resume the program. Without the IMF program, there will be no support from multilaterals and bilaterals.
The government forecasts external funding of US$ 23.9 billion in FY2024 Budget, whereas in FY23 the external funding received was only $
This includes US$ 2.4 billion budgetary support from the IMF, which looks highly unlikely after the budget announcement.
The FY24 includes US$ 4.5 billion loans from commercial banks and US$ 1.5 billion in issuance of new Eurobonds / Sukuks, which is impossible considering the high global interest rates, the sovereign downgrade by all rating agencies and the derailment of the IMF program.
The PDM government has budgeted US$ 3 billion in new deposits from Saudi Arabia and the United Arab Emirates (UAE), which is subject to the resumption of the IMF program.
Similarly, US$ 2 billion budgeted under program loans is again dependent on the resumption of the IMF program.
The financing plan lacks serious credibility and will be impossible to achieve in the absence of the IMF program, which is scheduled to end in June.
The PDM government knows that their term ends in August 2023, they have deliberately pushed the economy to a point where there is no money in the account, large payments are coming due in the next few months and there will be no time available for the caretakers or the new government to save the economy from a default.
Debt restructuring, rescheduling, or re-profiling? The government lacks the understanding and capacity to undertake this herculean task. Every day new announcements are made that create more panic in the markets.
Social spending has deliberately been hijacked for pilferage
Under the PTI government, social spending was increased through the targeted programs including Ehsaas (cash disbursement and subsidized ration), Sehat cards for universal health care and langar & Panahgahs for vulnerable citizens.
Under the PM Ehsaas program, multiple programs were launched to provide relief to the poorest households. During COVID nearly 15 million households were provided cash assistance and more than a 140 million citizens were provided free of cost vaccines.
The Ehsaas ration program was launched to provide ghee, flour and pulses to the poorest households at subsidized rates (40% below market prices). This program was launched across Punjab and KPK, covering nearly 60% of the poorest households across Pakistan.
PDM government has stopped this program and canceled contracts with retailers and dismantled the digital financial infrastructure created under the program.
Instead, they have diverted resources to populist schemes like the flour distribution schemes which are badly organized with multiple deaths due to stampedes. There is also corruption and pilferage of public resources by the powerful politicians.
The Sehat Cards providing universal health insurance to the people of Punjab, Islamabad, Azad Jammu and Kashmir (AJK) & Gilgit-Baltistan and Khyber Pakhtunkhwa (KPK) have been deliberately sabotaged and funding has been cut down. This is done deliberately for political vendetta and to divert resources for pilferage.
Subsidized credit schemes for the youth and vulnerable households including Kamyab Jawan, Mera Ghar and Kamyab Pakistan have all been shelved, depriving thousands of youth especially women from opportunities for poverty graduation.
