Budget Fiscal Year 2017: MoF comes up with Rs 4.42 trillion indicative ceiling

WEB DESK: Finance Ministry has projected indicative budget ceiling at Rs 4.418 trillion for the financial year 2016-17 against original estimates of Rs 4.089 trillion for 2015-16 , showing an increase of 8 per cent.

Well-informed sources in Finance Ministry told Business Recorder that the Finance Ministry is expected to earmark Rs 1.354 trillion to pay mark-up on different loans against 1.280 trillion in 2015-16.

Allocation for defence will be Rs 860 billion in 2016-17 as compared to Rs 781 billion earmarked for 2015-16, showing an increase of 10.1 per cent.

For pensions, Rs 245 billion are expected to be earmarked in the budget 2016-17 against original estimates of Rs 231 billion in 2015-16, indicating an increase of 6 per cent.

The allocations for federal government service delivery are expected to be Rs 348 billion in 2016-17 against original estimates of 2015-16, showing a growth of 6.75 per cent.

The sources said, amount of subsidy for 2016-17 will be Rs 169 billion which is at the level of current fiscal year. The grant to provinces will be increased to Rs 40 billion in 2016-17 from original estimates of Rs 38 billion in 2015-16.

Grants -other than provinces – will be enhanced to Rs 542 billion in 2016-17 from Rs 506 billion in 2015-16, showing a growth of Rs 7.1 per cent.

For Public Development Programme, the government is expected to earmark Rs 800 billion in 2016-17 against original estimates of Rs 700 billion in 2015-16, indicating a growth of 14.2 per cent.

The amount of net lending will be increased to Rs 60 billion in 2016-17 against Rs 59 billion for the current fiscal year.

According to sources, GDP growth target for 2016-17 is expected to be set at 6.2 per cent in 2016-17 against 5.5 per cent for the current year. The government is unable to achieve the GDP growth target as it is estimated to be 5 per cent.

The inflation target will be around 6 per cent in 2016-17 which is similar to current fiscal year’s. Budget deficit to GDP ratio is estimated to be set at 3.8 per cent in 2016-17 as compared to original estimates of 4.3 per cent in 2015-16 whereas tax to GDP ratio for 2016-17 is estimated to be 12.7 per cent against 12.2 per cent in 2015-16.

The public debt to GDP ratio will be 59.4 per cent in 2016-17 as compared to original estimates of 62 per cent during the current fiscal.

After providing an overview on the performance of the economy, Budget Strategy Paper (BSP) for the year 2016-19 was presented before the Cabinet. It was apprised that the medium- term macroeconomic strategy aimed to take the country towards a high growth trajectory, leading to lower unemployment and greater prosperity and that the emphasis was on improving investment climate in the country to generate new business opportunities.

During the current fiscal year, GDP growth was projected to increase to around 5 per cent against the target of 5.5 per cent due to major setback to cotton crop.

“Though less than the target, the projected growth would be the highest in eight years,” the sources quoted Finance Minister as saying. In the medium term, the GDP growth projections were estimated to be 6.2, 7.0 and 7.5 per cent in the next three financial years (2016-17 to 2018-19).

The Cabinet was further informed that the average inflation of 2.6 per cent (July-March) was the lowest in the past few three years and that Pakistan’s tax to GDP ratio was budgeted at 12.2 per cent this year but was projected to increase to 12.7, 13.2 and 13.7 per cent in the next three years.

The FBR’s tax revenue would enhance to Rs 3,735 billion showing a 20.3 per cent increase as compared to the budget of 2015-16. Due to improved tax collection, the fiscal deficit was expected to come down to -4.3 per cent of GDP this year compared to 5.4 per cent in the previous financial year.

Furthermore, foreign exchange reserves reached $20.7 billion as on April 21, 2016 and were expected to touch 23.6 billion, $25.5 billion and $30 billion by the end of next three financial years, respectively.

On April 27, 2016, the Cabinet was briefed that due to low interest rates, there had been a substantial increase in private sector credit (a growth of 99 per cent over the previous year (till April 8) with the Large Scale Manufacturing (LSM) growing by 4.35 per cent (July-February) as compared to 2.37 per cent in the same period last year.

Similarly, agriculture credit showed a healthy increase of 18 per cent. Due to a weak global demand and muted global commodity prices, exports had gone down from $18 billion last year (July-March) to $16.4 billion during the same period this year and overall imports had also decreased during this year (July-March) by 5 per cent due to a substantial reduction in oil prices.

However, imports of machinery and raw materials had also increased, demonstrating production enhancements in the economy.

The cabinet was informed that when the present government assumed office in 2013, Pakistan’s economy was on the verge of collapse, official foreign exchange reserves had dwindled to less than $3 billion and there was a fear in the international market that Pakistan would soon default. However, within a period of three years, the country’s economy had stabilised and different international forums had declared Pakistan a macro economically stable economy.

China, Russia and Middle Eastern countries were investing in Pakistan in a big way. Recently, two motorways projects under the China Pakistan Economic Corridor (CPEC) viz, Sukkur-Multan and Thakot- Havelian had been approved by the State Council in Beijing. However, the economic relationship with China was not just limited to CPEC investments of $46 billion only; rather, its dimensions expanded much further to include industrial estates which were being negotiated with the Chinese government. Negotiations on similar other investment opportunities were also under way.

Prime Minister Nawaz Sharif directed Chairman National Highway Authority (NHA) that it should give a briefing to the Cabinet on the projects being undertaken by the Authority. It was clarified that the CPEC was an investment by the Chinese and not loans to the Government of Pakistan.

In addition, Gwadar Port and many large and small projects including those pertaining to coal, electricity and gas sectors beyond CPEC were in the pipeline that would be a game changer for the region. It was pointed out that the government has substantially overcome the energy shortages in the country and gas load shedding is likely to end by December, 2017.

The Prime Minister, who presided over the cabinet meeting, pointed out that despite an increase in volumes, the value of Pakistan’s exports had come down which showed a lack of value addition in export commodities/ products and that the fiscal space arising out of lower oil prices and high annual remittances would not last forever.

He emphasised the need to focus on Pakistan’s exports and to find out how the export sectors of Pakistan’s neighbouring countries as well as other countries at a similar level of economic development compared with those of Pakistan. He also emphasised the importance of control over expenditure along with increase in tax revenues and underlined that the money should be expended for productive purposes only. – Business Recorder