Pakistan Reader# 111, 14 June 2020
The Budget 2020: The challenge of raising 3940 billion as revenue and meeting the deficit of 3190 billion rupees
The budget presented on 12 June by the PTI government is simple. The expected expenditure would be around 7100 billion rupees. It plans to meet this expenditure by raising revenue of 3940 billion. This would mean, there would be a deficit of 3190 billion rupees.
The first challenge is, how would Pakistan raise 3190 billion rupees? Pakistan's tax structure is known for its narrow base. According to the latest Pakistan Economic Survey, "Pakistan's tax structure is characterized by the narrow tax base, massive tax evasion, a large number of concessions and exemptions, regressive tax regime, reliance on indirect taxes and tax administration challenges." For 2019, according to the Pakistan Economic Survey, the federal tax revenue was 3820 billion, which was slightly less than what it collected in 2018. With the growth of economy reeling under the COVID onslaught, where will Pakistan raise the above number?
With the global economy slowing down, and Pakistanis working in the Gulf returning, there would be a further decline in foreign investment and remittances during this budget year. The expectation of the government is – it would raise the foreign direct investment (FDI) by 25 per cent this year. It is a challenging number, given where global economic growth is. In terms of exports, much would depend on the energy situation leading to manufacturing output, and also the economy in the destination countries.
The second challenge would be to meet the deficit, which is placed at 3190 billion rupees. Pakistan already has a huge portion of its budget addressing debt payments. In fact, the 2020 budget has interest payment as its biggest chunk in the expenditure with 2940 billion rupees, followed by defence expenditure 1280 billion. On both, the PTI government will have no space; the debt payments have to be made, and the defence expenditure is sacrosanct and beyond the purview of Parliament.
The above would also mean, meeting a huge deficit. Who will support Pakistan? Its brethren in the Middle East? Or, China with whom Pakistan shares a relationship higher than the Himalayas and deeper than the Oceans? Or, the IMF? If it is China or the IMF, what would be the conditions?
Pakistan's Army Chief visits Kabul to meet Ashraf Ghani and Abdullah Abdullah
The second significant development during the week was the visit of Gen Bajwa, Pakistan's Chief of Army Staff along with the Director-General of the ISI to Afghanistan.
It was not a planned visit to discuss bilateral issues plaguing the two countries. Instead, the visit is the result of Zalmay Khalilzad's trip to Islamabad a few days earlier to discuss what is happening in Afghanistan. Khalilzad had a one to one meeting with Gen Bajwa; the ISPR published a short note on the discussion, without providing any details of what was discussed. In retrospect, one could link Khalilzad's visit to Pakistan with Gen Bajwa's high profile visit to Afghanistan with his ISI Chief.
The focus should have been on the negotiations between the Taliban and the Afghan government. There should have been an American pressure on the Afghan leadership to yield to kickstart a negotiation with the Taliban. The US wants it to showcase to rest of the world and its own people so that it can hasten the removal of American troops from Afghanistan. The Afghan leadership is not in favour of talking to the Taliban for two reasons; first, it does not trust the Taliban, and second, it fears that the Taliban control is in Rawalpindi. Hence the Khalilzad triangular trips – to Doha, Islamabad and Kabul.
Gen Bajwa should have been the happiest man today. For three reasons; first, Pakistan's army (and the ISI) is now back in the loop to decide the future of Afghanistan. Second, it reopens the link between Pakistan's military leadership and the US; the latter believes, the former's role is important for the American troops to exit Afghanistan. Third, within Pakistan, it provides the space to the military (and not to the elected leadership) in deciding what the country wants to achieve in Afghanistan as Endgame. Though the newly appointed Pakistan Special Envoy for Afghanistan also accompanied the military and the ISI Chiefs, his role was limited.
Imran Khan does not want a lockdown; the SOPs are not being adhered to, leading to an increase in COVID cases in Pakistan. So, what is Pakistan's option?
According to the latest numbers, as on 14 June, the COVID figures for Pakistan is the following: 139,000 plus confirmed cases and 2600 plus deaths. Punjab (52,600 plus) has overtaken Sindh (51,500) in terms of the number of cases; KP, Balochistan and Islamabad have 17400, 8000, and 7900 cases respectively. In the occupied Kashmir, there are close to 1700 cases (GB and "AJK" put together). However, Imran Khan still refuses to pursue a complete lockdown.
A study in the UK supported by the British government says Pakistan will reach its peak on 10 August 2020, with 80,000 deaths on that day alone, based on an algorithm developed by the Imperial College of London.
The above projection may be an exaggeration; but, highlights the problem – the rising COVID curve within Pakistan and across all four provinces, perhaps with Balochistan as the exception.
The problem for Imran Khan is fourfold. First, his own belief, that the lockdown is an elite concept and will not work. Perhaps, he shares the same syndrome that the Brazilian President Bolsonaro has – COVID is just flu. From day one, he was not in favour of imposing the lockdown. He found the idea of "smart lockdown" as his eureka moment and decided to ease it.
His second problem is his people; the Pakistanis like in many other parts of South Asia are not interested in listening to and adhering to the Standard Operation Procedures (SOPs) that the government has set in. Multiple photos published in the mainstream media from Karachi to Peshawar would highlight the respect that people show for social distancing.
Imran's third problem is his health infrastructure at the national and provincial levels. Successive governments never showed interest in building the health infrastructure. Despite the COVID onslaught, how much has Imran Khan allocated for upgrading existing health services, clean drinking water, sewerage, solid waste management and education? A paltry 70 billion rupees!
Imran's fourth problem is politics and centre-provincial relations. While his party is leading the government at the national level and in two provinces (Punjab and KP), PPP is ruling Sindh. The Chief Minister of Sindh seems to have understood the nature of the problem and started taking actions better than the PTI government. PTI and PPP are not in the same page in addressing the COVID.
What would this mean? The COVID would prove disastrous for Pakistan. The next few weeks will be crucial unless Imran Khan realizes that COVID is a serious problem. Instead of advising the Indian government on "Pakistan's success" in how to handle the COVID and crying about India not listening to his advice, he should look at what is happening in Pakistan. And heed to what his own people, media, judiciary are telling, besides the WHO.