Fiscal Goals

Spearhead Analysis – 12.05.2017

By Farrukh Karamat
Senior Research Coordinator, Spearhead Research

The government has decided to maximise spending in 2017-18 with a 6% economic growth target. The Prime Minister has given his approval to relax the limit for the fiscal deficit for the next three years. Incentives are expected to be provided to the agricultural sector and investments focused on China-Pakistan Economic Corridor (CPEC), energy, communications and poverty reduction. In an apparently unprecedented move the Prime Minister in a select gathering of Cabinet members approved the Budget Strategy Paper (BSP) 2017-18 presented by the Finance Minister, without sharing it with the full federal cabinet or presenting it to the parliamentary committees for input.

With the fiscal deficit having already breached 3.7% of GDP, in the first nine months, and expected to further rise by fiscal year end, the deficit has exceeded the targets set by parliament. Now the Government is expecting to bring the deficit level below the 4% of GDP by 2020. It appears that the estimates were way off and the situation is much worse than was expected. At the same time the Government also revised downwards the growth rate for the economy to 6% from 6.2% for the current fiscal year.

As in the past the financial goal-posts have once again been moved without consultation and we have new targets, so that everything appears to be within limits.

The government is determined to do something to generate votes in the forthcoming elections – increase investments in both human and physical infrastructure, by according increases in the development budget and poverty reduction. The Prime Minister stated: “The time has come for the nation to reap the benefits of economic policies of the government.” As if the increased benefit of load shedding that the people are reaping is not enough, despite purportedly billions of rupees having been poured into the power sector.

The nation is once again being fed the age old rhetoric of the budget being fiscally prudent, with lower inflation, higher investments and lower public debt. The story has been repeated so many times and the fiscal goal posts shifted that it is difficult to lend credence to it.  Finally, in 2017-18, the government expects to achieve 6% economic growth, as opposed to 5% estimates by multilateral agencies, and increase revenue generation. How this will be achieved, is anyone’s guess, with exports dwindling and the manufacturing sector almost stalling. The agricultural package more than anything else appears to be a vote generating effort in the final year of the government. The sector which languished in the past three years, has apparently suddenly gained focus due to the population demographics of the country.

The coming days will show what relief the budget brings for the common man and how it addresses the fiscal gaps in the economy. For now, it all appears to be window dressing to appease an easily swayable voting population.