ISLAMABAD, June 11: Facing daunting political challenges and an economic slowdown, the PPP-led coalition government on Wednesday presented a Rs2.01 trillion national budget that at once offers relief measures to the poor and the salaried class, imposes new taxes and slashes food, fuel and power subsidies.

The budget, which was presented by Finance Minister Syed Naveed Qamar in the National Assembly after its earlier approval by the federal cabinet in a meeting chaired by Prime Minister Syed Yousuf Raza Gilani, seeks to meet a budgetary deficit of Rs582 billion by rationalising taxes, mainly by increasing indirect General Sales Tax (GST) from 15 per cent to 16 per cent — a move likely to push already surging inflation further up.

But economic experts said a drastic cut announced in the budget on food, fuel, electricity, and fertiliser subsidies — from Rs407.48 billion to Rs295.20 billion — would most hurt the poor already reeling from price-hike, inflation and food shortages.

While the rationale behind the harsh decision is said to be an attempt at pruning fiscal deficit — from 7 per cent to 4.7 per cent — it is common knowledge that international donors have been demanding the abolition of all subsidies for a long time.

Senior government officials privy to the reason for the overwhelming slash in subsidies told Dawn that budgetary support had to come from external sources and such support for the budget for the coming fiscal was 29.7 per cent higher than last year. They said the government would have to make “painful adjustments” to achieve 25 per cent growth in revenue, whose target had been set at Rs1.2 trillion in the new budget. Net capital receipts have been estimated at Rs221 billion, against Rs59 billion of last year.

However, analysts said the revenue target was too optimistic and, like the outgoing fiscal, would be revised downwards after some time when the federal bureau of revenue faced “slippages”.

The finance minister said in the National Assembly that “vulnerable groups” would be protected from the price hike through the launching of a new programme, which will be known as Benazir Income Support Programme.

“For the programme, we are initially allocating Rs34 billion. The sum will be raised to Rs50 billion. This includes a monthly cash grant of Rs1,000 to each qualifying household to be selected through the computerised databank of Nadra.”

The beneficiaries of Benazir Card, he said, would also be provided other welfare facilities like employment, skill development training for youths, medical insurance and food subsidy.

According to the budget document, servicing of domestic debt will come to Rs459.09 billion and foreign debt servicing has been estimated at Rs64.077 billion during 2008-09. Repayment of foreign loans has worked out to be Rs96.18 billion.

The government seems to have backtracked on the claim of “freezing” the defence budget because the budget proposes a nearly seven per cent increase, from Rs277 billion spent last fiscal to Rs296.07 billion in 2008-09. However, it was not clear whether the increased budgetary allocation would go towards employees’ expenses or acquisition of defence assets.

Resource availability estimated for the new budget is Rs1,836 billion, against last year's Rs1,394 billion. Net revenue receipts for the new budget have been worked out at Rs1,111 billion, indicating an increase of 23.1 per cent over last year.

The provincial share in federal revenue receipts is calculated to be Rs568 billion, 22 per cent higher than last year. Capital receipts net for 2008-09 is estimated at Rs221 billion against Rs59 billion of last year.

The overall expenditure is estimated at Rs2,010 billion, including current expenditures worked out at Rs1,493 billion, showing a decrease of 1.5 per cent over last year.

The Public Sector Development Programme (PSDP) has been estimated at Rs550 billion, registering a 20 per cent increase over last year. The National Economic Council (NEC) had approved a Rs541 billion PSDP, which has been upped to Rs550 billion in the new budget.

The share of current expenditures in total budgetary outlay is 74.3 per cent, compared to 77.8 per cent last year.

The Water and Power Development Authority will get a subsidy of Rs74.6 billion, down from last fiscal’s Rs113.6 billion. Similarly, the subsidy for the Karachi Electric Supply Corporation will total Rs13.8 billion, against outgoing fiscal’s Rs19.59 billion.

The subsidy for Trading Corporation of Pakistan on wheat and sugar will total Rs26.6 billion during 2008-09, against Rs46.5 billion of the outgoing financial year. The subsidy for Utility Stores has been increased from Rs1.8 billion to Rs2.7 billion for 2008-09.

Subsidies on imported fertilisers, including urea, DAP and phosphatic fertilisers, will cost Rs35 billion to the exchequer during 2008-09. Subsidies on account of fuel oil and price differential claim of Oil Marketing Companies will be Rs140 billion, against Rs175 billion of outgoing fiscal.

No allocations have been for research and development support for the textile sector during the next financial year.

The budget proposes a total of Rs598.92 billion net transfers to provinces during 2008-09, including Rs505.7 billion from the divisible pool.

The new budget incorporates Rs31.25 billion receipts through issuance of a global bond during 2008-09.

“Public order and safety affairs” allocations for FY09 have been estimated to be Rs26.77 billion.

Expenditures on education during FY09 have been estimated at Rs24.62 billion and Rs4.79 billion for social protection.

A superannuation allowance and pension expenditures have been estimated to be Rs50.05 billion.

Profits of the State Bank of Pakistan are planned to be increased from Rs88 billion to Rs110 billion during the next financial year.

The government also plans to issue Pakistan Investment Bonds of Rs50 billion, prize bonds of Rs20 billion, treasury bills of Rs5 billion and government commercial papers of Rs40 billion during coming fiscal.

The finance minister told the house that the government would reconstitute the National Finance Commission and convene its meeting as soon as nominations of members were received from the provinces.

He said the projected income and expenditure indicated that the provinces were likely to benefit from improvement of about Rs79 billion in their cash balance after providing for the local component of their PSDP and extra expenditure.

The finance minister conceded that the government did not have many resources and that “we were never confronted with such grave problems”.

“The budget for 2008-09 is part of the perspective plan on which the new government is currently working and the plan will shortly be finalised. Accordingly, we are taking a long-term perspective while announcing the budget. It will be useful to spell out the key assumptions about the macroeconomic conditions assumed to prevail during the year and will affect the budget.

“These include a 5.5 per cent growth rate of GDP, inflation will be contained at 12 per cent, fiscal deficit at 4.7 per cent, current account deficit to be reduced to 6 per cent of GDP and foreign exchange reserves will be increased to $12 billion.” The finance minister also assured the house that loadshedding would be reduced by increasing installed electricity capacity to 1,500 megawatts. “While the textile industry will have continuous, round-the-clock supply, flour and ghee mills will have 18 hours of power supply. Agricultural tubewells will have regular power supply for 10 hours at a stretch every night to make use of tariff rebate.”Foreign investment in agriculture, he said, would be encouraged to increase productivity and develop cultivable areas. Large tracts of land would be made available to foreign investors to induct capital and technology in the local farming sector, he said.After the budget speech, the finance minister tabled the finance bill which was later transmitted to the Senate so that the upper house could formulate its proposals which could be incorporated in the final budget.

Revenues and expenditures