ISLAMABAD: The government is going to present the federal budget 2021-22 on Friday (today) with a total outlay of over Rs8.5 trillion.The government aims at moving towards graduating from stabilization to growth trajectory by ensuring direct interventions for providing relief to 4 to 6 million poor people. The budget revolves round 3Ds on the expenditures front including debt servicing, defense and development.

Alarmingly, the resource envelope is eaten away after paying resources to the provinces under the NFC mechanism and fulfilling the debt servicing obligation. All remaining expenditures obligations, including a large portion of defense, development, running of government including salaries and pension as well as provisions of subsidies, are met by obtaining domestic and foreign loans.

This is the state of affairs where the budget makers are assigned to present a budget comprising total revenues and total expenditures of the country. The major challenge for the budget makers will be presenting such estimates of total revenues and expenditures that give direction to the economy for reaching close to 5 percent of GDP and satisfying the IMF.

If the IMF does not feel satisfied with the upcoming budget, then the existing programme may land into the suspension mode. The government is all set to increase salaries and pension of public sector employees, as 25 percent disparity allowance for federal secretariat employees the government will grant another ad hoc allowance of 10 to 12.5 percent in the coming budget.

Pension will also be increased. The government may also announce its plan to kick-start defined contributory pension for new entrants into public sector but it requires changes in rules of business.

There will be certain risks to the budget, as the government envisaged GDP growth rate of 4.8 percent and 8 percent inflation. The revised growth estimates for outgoing fiscal year might go up close to 4.5 to 4.7 percent for outgoing fiscal year so achieving growth target of 4.8 percent in next fiscal year after touching higher base could prove a difficult task.

Secondly, there would be risks to curtailing the inflation at 8 percent when the commodity and fuel prices on the international market might witness a surge in the first half of the next fiscal year in the wake of revival of economy after provision of vaccines that the economic recovery would pick up pace.

The FBR’s target of Rs5.829 trillion would be a challenging task, as the IMF and Government of Pakistan possessed divergent views that how this target would be materialised.

The FBR presented its strategy whereby it wanted to rely upon enforcement and broadening of tax base to collect additional taxes of Rs250 billion out of required tax amount of Rs480 billion.

The FBR argues that its collection could go up to Rs5.32 billion with nominal growth of 13 percent and the remaining revenues would be collected with the help of slight adjustments in taxes, enforcement measures and broadening of narrowed tax base.

With budget deficit curtailing at 6.4 percent of GDP equivalent to Rs3,414 billon for the next budget against revised estimates of fiscal deficit standing at 7.5 percent of GDP in the outgoing fiscal year, the government requires fiscal adjustment of 1.2 percent of GDP in the coming budget.

The FBR’s tax collection and non-tax revenues could fetch Rs7.2 trillion. After paying to provinces from the divisible pool, the Centre is left with meeting obligations of debt servicing it had to borrow to finance the budget deficit. There are certain expenditures of State Owned Entities (SOeEs), which are not fully reflected on books.

The POL prices witnessed surge and touched $71 per barrel and the IMF wants to see petroleum levy at rate of Rs30 per liter to fetch Rs600 billion, although, the government is vying for reducing this target around Rs450 billion for next budget.