The quest to formulate a viable development strategy in the recent budget that would help improve macroeconomic indicators remains a Herculean task for the PTI government. It is because, economically, the government has fought on several fronts.
The Covid-19 pandemic has caused many economic losses in the country related to livelihoods and employment. And the IMF bailout with its structural adjustment program also put pressure on the business team regarding tax revenues and spending cuts.
Cumulatively, these external pressures impacted the recent budget which raised questions about the current government’s promises to advocate a growth-oriented strategy in its election campaign.
Read more: Here is a summary of Pakistan’s budget for fiscal year 2021-22
Therefore, the recent budget presented by the current government did not reflect the underlying grand strategy to modernize the economy. Instead, decisions made by the economics team highlight short-term gains that lack the long-lasting progress needed in these difficult times. So the quest to mimic the progress of the Asian tigers remains a pipeline dream, even in the PTI government’s third annual budget budget.
East Asian Development Strategies
The economic measures taken by East Asian countries reflect their long-term ambitions to boost exports and invest in research and development. In addition, most of their economic contribution is based on upgrading their workforce through skills development on modern lines and vocational training.
Thus, the secret of Singapore’s success lies in its timely investment in human capital and in establishing its geostrategic location as an asset. This is why today it is one of the competitive economies in the world with a high literacy rate and a low rate of poverty and malnutrition.
Read more: Why is Singapore the best place to start your business in Asia?
By supporting high-end industries and entrepreneurs in technical, R&D and marketing terms, these states are enabling their businesses, which are the backbone of national progress, to grow exponentially. Such metrics are missing from our budget which shows no clarity on likely progress on key criteria against which the budget should be assessed. They include improving social equity, improving the technical level of the economy, and increasing tax revenues and exports.
Therefore, the ideas presented in the new budget are like old wine in new bottles. There is relief for retirees, workers, and government officials who indicate some degree of social fairness as well as relief for many industries instead of a few that states choose to modernize the economy.
Some decisions support those that are politically favored rather than economically promising. This is because the tax breaks and tax breaks offered to so-called key industries have been counterproductive, as technical gradation or motive for expansion has not been achieved for decades. Although work has been done on technical and R&D issues, its link to performance is absent.
Read more: PTI government set to hit Rs 5.8 billion tax target
The dairy sector is bleeding with new budget constraints
The dairy sector has seen an increase in the General Sales Tax (GST) rate from 10% to 17% on milk, cheese, yogurt, butter, flavored milk, tea whitener and cream. This decision will cause the price of these dairy products to skyrocket, leading to an additional payment of Rs 5 billion by people residing in cities that use packaged products.
The Pakistan Dairy Association has elucidated the repercussions of increasing taxes in the form of fueling inflation and playing with the health of the nation. This is because dairy products play a fundamental role in a nutritious diet that promotes a sturdy and energetic build in children in their growing years.
Read more: Children ignored in the 2021-22 budget because dairy products are heavily taxed !!
Consequently, the dairy sector will suffer further setbacks with this decision. It was already behind schedule for lack of modernization and for the quality and quantity of the yields produced. Industry insiders suggest that the recent policy change will weaken the already mined dairy industry by 15 billion rupees over the next three years and negatively impact people’s livelihoods and food needs.
The ramifications of this “nutritional tax” on milk, butter, cheese and cream can be seen in paralyzing the ability of ordinary humans to access healthy and nutritious products. This measure will have a negative impact on the health of our young population and mothers who are the foundation of a society in progress.
Read more: The nutrition promise broken in the 2021-22 budget as the dairy industry is taxed
More than that, the move flies in the face of the government’s PTI agenda which is committed to bringing the already exhausted and underperforming dairy industry to life, which could enable long-term exports and ensure well- be of our growing population. Thus, the decision to increase taxes on the dairy sector is in contradiction with the growth objectives of the PTI.
Malnutrition worsens as ‘nutrition tax’ bleeds dairy sector
– The Dayspring (@the_dayspring) July 1, 2021
Small ideas in the budget
Although there are a range of programs linked to the Benazir Income Support Program (BISP) as well as the considerable increase in the development budget, these goals will remain unachievable if tax revenues are not met. As a result, these projects will have low efficiency, high leakage and questionable links to economic growth or income expansion.
Therefore, such budgets will fuel budget and current account deficits by wasting resources on superficial ideas that neither increase incomes through taxes and exports, nor guarantee long-term development.
Read more: Is a bloated bureaucracy responsible for Pakistan’s budget deficit?
Even though past regimes have added budget and current account deficits to the economic pool, the current government, despite promises to do the opposite, has also fueled its own share of the budget deficit. In addition, since the GDP tax for fiscal year 2020-2021 stands at 11%, it is evident that the economic slowdown due to the pandemic has adversely affected economic activities and tax collection.
This indicates that the government has less funds to increase its development spending in health, education and poverty reduction programs. Therefore, it is essential to widen the tax net and induce reforms in RBF, which is the cornerstone of economic development in Pakistan.
Read more: How Pakistan’s new budget fails to address key areas of concern
The recent budget and the IMF are taking care of it
The pro-growth tax policies listed in the recent budget underscore the confidence of the business team that it can meet IMF program goals without increasing personal or income taxes or tariffs. electricity.
Although the recent postponement of the IMF review can be interpreted as a sign that the fund is prepared to support the new growth policies with some flexibility, the challenge is that the economic team will be in good stead. able to keep its promises. If the government succeeds in raising revenues, reducing power sector debt, and increasing social spending, the IMF could show some flexibility.
However, at this point, the statement by the IMF spokesperson shows that the cracks continue to winter over Islamabad’s decision to change course in the middle with the lender’s insistence on accelerating the implementation of policies and procedures. reforms needed to meet the long-term challenges facing the economy.
Read more: IMF urged for leniency, Finance Minister
Thus, it becomes clear that if the economics team fails to promote the goals contrary to the IMF’s restrictive fiscal policies as part of its structural adjustment program, then the prospects of getting more dollars and leeway. lender of last resort will be difficult. In addition, much rests on the withdrawal of the United States from Afghanistan, highlighting the interweaving of geopolitics and geoeconomics within the regional context.
Hadia Mukhtar is a Pakistani geopolitical analyst in Karachi with a keen interest in international relations. She worked as a content writer for international publications and worked on non-fiction books. Currently, she is an associate editor at GVS. She can be contacted at [email protected] The opinions expressed in the article are those of the author and do not necessarily reflect the editorial policy of Global Village Space.