Federal Finance Minister Shaukat Tarin has injected some optimism into the management of the economy with his two-pronged approach: growth and inclusive growth – not as two sides of the same coin but distinct because they must be achieved through two different policies. spurts.

The current year’s growth is to be achieved through a further extension of Covid-19 mitigation policies, widely seen as the reason for the inconclusive Sixth Review talks with the International Monetary Fund (IMF). This implies: (i) maintaining the discount rate of 7% against 13.25% July-March 2019-20; (ii) in recent weeks, the parity between the rupee and the dollar has risen to over 159 rupees, from a low of 152 rupees in May 2021. Market participants have attributed the parity of 152 rupees to interventions by the State Bank of Pakistan (SBP) which they say may have been dropped this month in an attempt to address Fund concerns by September, the month scheduled for the postponed Sixth Review talks. SBP, however, would argue that the erosion of the rupee is due to disorderly market conditions which, given the claim of over $ 18.2 billion in foreign exchange reserves, although more than half came from debt, and swap agreements, can be a challenge to sustain; and (iii) the fiscal incentives to productive sectors to continue, which according to the budget documents available for 2021-22 consist of at least 93 billion rupees, of which: (a) 20 billion rupees for subsidies / transfers of DLTL tax rebate, (b) zero industrial subsidy valued at Rs 26 billion, (c) an industrial support program of Rs 15 billion, (d) Rs 22 billion to KE under the same program of industrial support, and (e) a subsidy to the LNG sector to supply gas at rates below industry 10 billion rupees.

The impact on the circular debt of the decision to freeze basic electricity tariffs is not quantified. These industry-friendly incentives are seen as a major contributor to the expected growth of 5 percent this year which, with inflation of 8.2 percent, is expected to increase tax revenues by 621 billion rupees.

At the same time, the budget would ensure that the elite – the wealthy undocumented undocumented filers, especially retailers – would start paying taxes owed, with the budget projecting 242 billion rupees through enforcement measures – a figure cited over the years. previous but never realized. To make this even more unrealistic, this figure has been increased from 100 billion rupees to 342 billion rupees following the 100 billion rupee relief in the budget measures announced by the government in response to suggestions / recommendations by parliamentarians and officials. pressure groups. Either way, enforcement revenue would not be generated through an audit by Federal Board of Revenue (FBR) officials as in the past, but through a third party audit. One would hope that private accounting firms would be carefully screened by the government to ensure that there are no subsequent allegations of nepotism / corruption.

Inclusive growth is to be achieved through government sponsored cards / programs budgeted at Rs 306.3 billion, ranging from: (i) Benazir Income Support Program (budgeted Rs 246 billion); (ii) Baitul Mal (4.2 billion rupees); (iii) subsidy to the Naya Pakistan Housing Authority (30 billion rupees); (iv) margin subsidy to Naya Pakistan (3 billion rupees); (v) credit guarantee system for small farmers (100 million rupees); (vi) Kamyab Jawan program / Kissan program (10 billion rupees); (vii) Risk-sharing facility for small and medium-sized enterprises (5 billion rupees); (viii) Covid tax loan guarantee scheme (5 billion rupees); and (ix) a refinancing and credit guarantee program for unsecured loans to SMEs (1 billion rupees).

Social protection not elsewhere classified is budgeted at Rs 252.4 billion. If this is added to the 306.4 billion rupees, then a total of 559 billion rupees must be paid to the poor and vulnerable to ensure inclusive growth. Given that the total budget expenditure is Rs 8487 billion, the amount for inclusive growth, given that 40 percent of this country’s population lives below the poverty line, is a low 6.5 percent; and if the 252.4 billion rupees are also classified elsewhere, as feared, then inclusive growth is only affected by 3.6% of total spending.

The question is, is this the right way to move forward? The government needs to start focusing on the percentage below the poverty line rather than how much it allocates to its inclusive growth programs to assess whether it is making a difference.

Second, the government must convince the IMF that its policy matrix has paid off in the first quarter. Failure would mean at best inconclusive talks and at worst a suspension of the program which in turn would send a message to multilaterals and bilaterals that Pakistan has abandoned its reform program leading to a halt in concessional inflows. The pressure on the rupee would increase and the costs of borrowing in rupees to repay past borrowing and interest payments on Eurobonds / sukuk would increase significantly; unless of course China, in marked departure from its global policies, decides to cancel previous loans and / or does not seek sovereign guarantees for projects within the framework of the China-Pakistan economic corridor.

It is the expected negative spillover effects of the IMF program suspension on the economy that undoubtedly prompts Finance Minister Shaukat Tarin to insist that the government has no plans to abandon the IMF program. and that in the event that the budgeted objectives are not met, there are alternatives which would fill the gaps, if necessary. It is not clear whether this would lead to a reduction in the social sector program; or the public sector development program budgeted at a peak of 900 billion rupees (rightly considered a growth engine in this country) which in turn would have repercussions on the growth rate and therefore on the expected growth of RBF collections; or a mini-budget (higher taxes); or eliminate incentives to the industrial sector.

To conclude, there are many slips between the cup and the lip and although the policy direction of the government seems to be an attempt to allocate to sectors / sub-sectors to ensure growth as well as inclusive growth, but the task is truly Herculean and must be recognized as such.

Copyright Business Recorder, 2021