Holes in the budget – Dr Farrukh Saleem


Tax hole: The budget shows ‘Tax Revenue (FBR) of Rs5,829 billion’. On May 29, the FBR told us that it has collected Rs4,143 billion in 11 months. That means the FBR will end up collecting around Rs4,500 billion this year. How can the FBR collect a wholesome 30 percent more next year? If the FBR collects 15 percent more next year it will come to Rs5,000 billion or so. That would leave a hole of Rs800 billion.

Let’s look at the ‘tax hole’ from a different angle. Let us say that we will raise our GDP to Rs50 trillion. In FY2020, our tax-to-GDP ratio stood at 9.6 percent. That would mean tax revenues of Rs4,800 billion. Let’s say that we will raise our tax-to-GDP to 10 percent. That would mean tax revenues of Rs5,000 billion. That would still leave a hole of Rs800 billion.

Debt hole: The budget shows ‘External Loans of Rs2,673 billion’. Isn’t that a two trillion-rupee black hole? Then there’s ‘Non-Bank Borrowing of Rs1,241 billion’. This is government borrowing under the guise of Defence Savings Certificates, Behbood Savings Certificates, Regular Income Certificates, Special Savings Certificates and Short Term Savings Certificates. Then there’s ‘Bank Borrowing of Rs681 billion’. This is government borrowing by selling T-Bills, Pakistan Investment Bonds (PIBs) and Sukuk. Collectively, this is a Rs3,000 billion hole.

SBP profit: In 2019-20, the SBP showed a profit of Rs1,163 billion as opposed to a loss of Rs1,043 billion the previous year. This year’s budget shows “SBP Profit of Rs650 billion’. How does the government know that the SBP will make a huge profit this year? I really have no idea how our central bank actually makes a trillion-rupee profit or incurs a trillion-rupee loss – and how can the government take the central bank’s profits as its revenue stream.

Privatisation hole: The budget shows ‘Privatisation Proceeds of Rs252 billion’. Last year’s budget showed privatisation proceeds of Rs100 billion. Actual proceeds: zero. A year before that privatisation proceeds were estimated at Rs150 billion. Actual proceeds: zero. Isn’t this a Rs252 billion hole?

Provincial surplus: The budget shows a ‘Provincial Surplus of Rs570 billion’. I guess it means that the four provinces will generate budget surpluses of Rs570 billion-and will pass on that surplus to the federal government. Does that sound logical? Sindh just passed a budget that has a deficit of Rs25 billion. Provincial surplus is pure gimmickry. One big hole.

Circular debt hole: For the past three years, the government has been losing an average of Rs500 billion a year in the electricity sector under the head of ‘circular debt’. This hole is an off-the-budget hole and the government must be credited for keeping it off-the-budget for so long. Circular debt in the gas sector is an additional hundred billion rupee hole.

Commodity operations hole: The federal government and the provincial food departments borrow from banks to ‘support domestic agriculture prices’. This is a Rs700 billion off-the-budget hole – and the government must be credited for keeping it off-the-budget for so long.

The IMF has, in the meanwhile, postponed the 6th review. So how big is the budget hole? A wild guess – Rs5,000 billion; give or take a few hundred billion. Will America and Saudi Arabia come to the rescue?

The writer is a columnist based in Islamabad.

Email: farrukh15@hotmail.com Twitter: @saleemfarrukh