Budget 2016-17 at a Glance
growth in the large scale manufacturing (LSM,
The fourth budget of the incumbent government
with the total outlay of Rs. 4894.9 bn. is 10%
higher than the revised estimates for 2015-16. Out
of overall expenditure of Rs. 4894.9 bn., current
and development expenditure stand at Rs. 3844.0
bn. and 1050.9 billion, i.e., 78.5% and 21.5%,
respectively. General Public Services take 2707
bn. (including a lions share of markup payment of
Rs. 1360 bn. and foreign loans repayment of Rs.
443.8 bn.) of the current expenditure. Defence
Affairs and Services have been allocated an
amount of Rs. 860 bn., as against Rs. 776 bn. for
the revised estimates of the outgoing fiscal.
Education and health services have low allocations
of Rs. 84 bn. and Rs. 12 bn. respectively while Rs.
352 bn. are allocated for running of civilian
government. Total size of the Public-Sector
Development Program (PSDP) is estimated at Rs.
1675 bn., out of which Rs. 800 is federal PSDP and
the rest has been allocated to provinces.
Development expenditure outside PSDP is
estimated at Rs. 156.6 bn.
Economic Scenario
The budget is presented in the backdrop of a mixed
economic performance. Overall GDP growth for
the outgoing fiscal is estimated at 4.7%, slightly up
from 4.23 % earlier year though falling short of the
target of 5.5%. A negative growth of 0.19% was
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recorded in the agriculture sector with higher
4.6%) and services sectors (5.7 %).
Fiscal deficit in 2015-16 is expected to be at 4.3%
of GDP. Inflation during July15-April16 period
stood at 2.79%, which is the lowest recorded in last
13 years. Forex reserves reached $21.4 bn., mainly
on account of remittances of overseas Pakistanis
and borrowings, as exports continued to decline.
On March 31, 2016, public debt reached to Rs.
19,168 bn. out of which more than $55 bn. was
foreign debt.
Despite missing critical targets, the state of
economy continued to show modest improvement
since this government took over 2013. However, it
remains below the potential, aspirations of the
people and promises made by the leadership.
Analyzing the Budget 2016-17
The budget proposes to bring down the fiscal
deficit to 3.8% of GDP by raising revenues and
containing expenditure. It also proposes to spur
growth, gradually reduce public debt to GDP ratio
and address critical areas of energy, agriculture,
exports and poverty. A glance at the measures,
however, shows that they are inadequate, adhoc
and in many cases inconsistent and unsustainable.
Moreover, some critical areas like augmenting
national savings, investments, production and
quality, unemployment, social development and
water resources are not getting the due attention.
1. The focus of revenues remains on
withholding taxes on non-filers and
indirect taxes continue to make up a major
chunk of the governments revenues.
Measures to broaden the tax base are
inadequate.
2. Dependence on borrowed domestic and
external resources continues. Rs. 819.6 bn.
are estimated as external resources, out of
which Rs. 796.7 are loans. Around 400 bn.
are coming from commercial banks and
bonds/sukuk. It means that the whole of
federal development outlay of Rs. 800 bn.
is being financed through external loans.
The government will also be borrowing Rs.
453 bn. from domestic, which is
significantly more than double of the
amount of Rs. 198.8 bn. borrowed from
this source in the outgoing fiscal. Rs. 1,787
bn. was added in domestic public debt in
the first 9 months of FY16.
3. Current expenditure is dominated by debt
servicing (47%) and defence (22%).
4. Rs. 800 billion have been allocated for
federal Public Sector Development
Program (PSDP) with Rs. 513 bn. going to
just two heads, i.e., Special Programs
(Rs. 200 bn.) and Corporations NHA and
WAPDA (Rs. 313 bn.) Half of the amount
allocated for Special programs is for the
rehabilitation and security enhancement of
temporarily displaced persons (TDPs). A
pertinent question is: whether this really is
development-spending? Allocations for
NHA and WAPDA indicate continued
focus on communications infrastructure
and energy. It may also be pointed out that
key federal ministries PSDP allocations
for 2015-16 were not spent, while both
WAPDA and NHA overshot their allocated
[2]
amounts. Spending on Railways was Rs.
15 billion short of the allocation of Rs. 41
billion, while Ministry of Planning,
Development and Reforms could hardly
spent less than 2 billion as against an
allocation of Rs. 14 bn. WAPDA and NHA
both spent Rs. 8 bn. and Rs. 18 bn. more,
respectively, than their initial allocations.
This in a way indicates shifting priorities
within developmental spending. Sectors
like water have faced the cuts. Rs. 28 bn.
have been allocated for Special Federal
Development Program once again,
although no spending was made against the
same amount allocated for the outgoing
fiscal year. Rs. 20 bn. have been allocated
again, as was the case for the outgoing
year, for MDGs and Community
Development Program. This amount is a
means to appease the national and
provincial level legislators, as it is spent
through them in their respective
constituencies.
5. Agriculture: Despite its decreasing share
in GDP, agriculture remains the mainstay
of economy providing employment to
around 44% of the workforce, as a vital
source for the countrys food security and
provision of raw materials for the countrys
industry and exports. Finance Minister has
announced a subsidy-based package for the
revival of agriculture, which included
subsidies on fertilizers and agricultural
tube-wells; removal of GSP on import of
pesticides and increase credit with reduced
mark-up, for the farmers. It has to be
ensured that the benefits should go to the
farmers, especially small and poor ones.
6. Industry and Exports: Persistent decline
in exports since this government came to
office in mid-2013 is a matter of serious
concern. Finance Minister has unveiled
some new measures for 2016-17 which
 include allocation of Rs. 6 billion to
operationalize the trade policy; reduction
in mark-up rate for Export Refinance
Facility (to 3.0 %); and Zero-rating of
Export Oriented Sectors. In addition, there
are textile-specific incentives, once again.
On one hand, these incentives remain
concentrated in a few already well-
incentivized sectors who have visibly
failed to live up to the countrys potential,
while on the other hand the budget also
lacks in coming up with measures which
can add fresh capacity to the key sectors of
industry. Incentivizing of non-traditional
exports is also limited to Technology
Support Fund. The budget also does not
come up with any specific measures to
adjust Pakistani economy to the changing
situation next door in the Gulf, in the wake
of openings in the post-sanction Iran and
Saudi Arabia unveiling mega plan to re-
orient its economy to the non-oil sectors.
7. BISP: The allocation for the program has
been increased from Rs. 102 bn. to Rs. 115
bn., while annual stipend is also being
increased to Rs. 18,000/- per recipient.
Thus the coverage is not likely to expand.
Many including the Institute of Policy
Studies have questioned, time and again,
the approach of making people dependent
on monthly doll-outs. Besides, its
distribution has also been observed as
politicized. Around $5.5 billion have been
spent under the program since 2008; the
need is to have a thorough impact
assessment, and to adjust / reorient the
scheme targeting to make people self-
reliant, not dependent.
8. The 18th Constitutional Amendment and 7th
NFC Award warrant a new approach in
public finance. It requires greater
coordination and consultation between
federation and provinces both in respect of
[3]
revenue generation and expenditure.
Federation may give incentives to
provinces to generate their own resources
in addition to sharing of tax revenues.
National and provincial expenditure and
physical targets may be set in key social
sectors like elementary education, basic
health, sanitation and water supply.
9. Discrepancy and inconsistency is noticed
in budget speech and budget at many
places, e.g.,
a. Budget speech mentions about high
priority being given by government to
education, health and other social
sectors. The claim is not matched
with budget allocations and other
measures.
b. The Finance Ministers speech states
that as a relief to widows and senior
citizens, income from property is
proposed to be taxed as a separate
block of income. In reality, this step
will burden widows and senior
citizens with additional tax as most of
them hardly have any other taxable
source of income other than portions
of their residential property given on
rent. The proposed measure will (i)
reduce the exemption threshold from
Rs. 4,00,000 to 2,00,000 (ii) disallow
all deductions of property tax and
1/5th of rent for repairs from taxable
income and (iii) fifty percent tax
rebate allowed to senior citizens
10. The Medium-term Budgetary Framework
(2016-17 to 2018-19) seems to be based on
moral rather than policy and is being
replicated from earlier year, i.e., advancing
the number to the next year. No fresh and
serious exercise seems to have been
undertaken to build the framework. For
instance, targeting inflation at 6% per
 annum for the next here years cannot be
justified in a policy framework.
11. There are no measures or announcement in
the budget that may promote Islamic
Finance in the country, although it had a
mention in the finance ministers budget
speech for FY16. Parts of Schemes such
PMs Youth Loans and National Health
Program may at least be financed through
institutions presenting Islamic modes and
products of financing to move towards this
objective.
12. China Pakistan Economic Corridor
(CPEC): While CPEC is a mega plan
having multidimensional opportunities for
Pakistani economy in the medium to long
run, it should not be seen as if other
programs and sectors are being
undermined. Bulk of the budget for the
communication infrastructure is for the
projects linked with CPEC. It needs to be
Prepared by an IPS Task Force | For queries: Mairaj-ul-Hamid, Asst. Research Coordinator, mairaj@ips.net.pk
[4]
integrated well within the overall economic
planning and projects of non-CPEC areas.
Due care should also be taken to harmonize
the conflicting interests.
Conclusion
It may be concluded that the budget for year 2016-
17 is an exercise as usual. Focus remains on
adjusting the balance sheet and ensuring
stabilization, without any bold and creative
measures to revitalize the economic activity in the
country. It is said that now the focus in on growth,
yet a meaningful approach to broaden the domestic
resource base is lacking. Augmenting domestic
savings and investments, foreign direct
investment, and raising productivity and quality of
human and physical resources are critical for
economic growth. Measures on these fronts are
missing. Budget is significantly short of the
desired objectives of self-reliance, inclusive
growth, human development and well-being.
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