PAKISTAN BUDGET’S 2015-16

After long speculations and projections, Budget 2015-2016 is finally official. The Federal Budget 2015-2016 is presented in the National Assembly on 5^th June 2015 by Finance Minister Mr. Ishaq Dar. The 4.451 trillion PKR worth of federal budget is set to focus on the encouraging economic growth and attract foreign investments in the country.

Following are the salient features of the Federal Budget 2015-2016.

• Minimum Salary has been increased from Rs12000 to Rs13000.
• Salary Tax rate is reduced from 5% to 2%.
• Salaries & Pension increased by 7.5%
• Bad News for those with high electricity bills! An additional 10% tax has been imposed on electricity bills above Rs75000 per month.
• The sales tax on all mobile phones of various brands has been revised & doubled from Rs 150, 250, 500 to about Rs 300, 500 and Rs 1,000. This is not really a good news for mobile phone users.
• Budget has a special place for Prime Minister’s special schemes. Rs20 billion is allocated for this purpose.
• Rs600 billion is allocated for farmers in the agriculture sector.
• Rs 20.88 billion have been allocated for healthcare services.
• Rs71.5 billion has been allocated for education of the nation.
• Rs3 billion is reserved for upcoming Ramzan package
• Mr. Ishaq Dar announced Rs16 billion reserved for Green Line Metro Bus service for Karachi.
• Rs31 billion is allocated for water management in the country.
• Rs112.28 billion has been reserved for WAPDA.
• The airlines and airports are given a TAX FREE status. The tax is exempted on import of aircraft, their spare parts, training simulators and equipment used in repair and maintenance of airplanes.
• Rs3.5 billion for security for CPEC route
• Pakistan Railways will receive Rs. 78 billion for rebuilding and progress of this sector.
• Rs25 million have been allocated for scholarships of students.
• Rs102 billion is allocated for Benazir Income Support Programme.
• Rs700 billion allocated for Public Sector Development Programme.

Federal Budget 2015-2016 from the point of view of a common man is not really a paradise. Relief measures for the citizens are not really up to the mark. Let’s hope that the budget 2015-2016 works in the favor of the nation and meet the expectation as they are claimed by the government.

Bismillahir-Rehmanir-Rahim

PART-I

Mr. Speaker,

1. Once again, as I have the honour of presenting the Budget 2015-16, I bow my head before Allah Almighty for untold and immeasurable blessings He has bestowed on this nation and the singular distinction He has conferred on Mohammad Nawaz Sharif, Prime Minister of Pakistan and his Government in restoring the health of a broken economy. The economic performance we have rendered in two years is unparalleled in the history of democratic governments. This has been made possible by the design of sound economic policies, first announced in PML (N) Manifesto for Elections 2013 and then incorporated and implemented in the Budget 2013-14 and since then faithfully and steadfastly observed and followed by the Government.

Mr. Speaker

2. This august House is well aware that when we took office, the most vicious rumour taking rounds in the local and international financial circles was the imminent default that Pakistan was set to make in June 2014. This was a clever guess based as it was on the level of available reserves and the payments falling due until that date. In the backdrop of completely dried-up foreign flows, as IFIs had declined to work with Pakistan, the reserves were destined only to travel south. However, we were determined to prove these economic pundits wrong and the country saw that not only we proved them utterly wrong but have steered the economy of Pakistan to safer shores.

3. In June 2013 we had a clear road-map of three objectives:

(a) Preventing Pakistan from default in 2014;

(b) Achieving macroeconomic stability by June 2015; and,

(c) Promoting inclusive economic growth for creation of job opportunities and providing resources to alleviate poverty from 3rd year onward.

4. We formulated policies and programs to achieve these objectives and we never hesitated in taking difficult decisions, no matter how unpopular, so long as they were critical for the revival of the economy. Accordingly, the economy of Pakistan has been stabilized and poised to grow at an accelerating rate.

Review of Economic Performance 2013-14

Mr. Speaker:

5. I would like to place before this august House the following key economic indicators, based largely on 9 or 10 months data for the current fiscal year:

(a) Economic Growth during 2014-15 has been provisionally recorded at 4.24% compared to the revised estimate of 4.03% last year, showing a rising growth trajectory. During 2008-13, the growth rate had averaged around 3% and hence this is the highest growth rate in seven years. The growth target for the year was 5.1%, which could not be achieved for the following reasons:

> Massive floods in September 2014;

> Economic disruption during August-December 2014 due political agitation;

> The massive decline in international commodity prices, particularly oil affecting the output of these and associated sectors;

> The unusually long and cold winter weather had a negative impact on the Rabi crops, including wheat;

> The output of large-scale manufacturing has been affected due to shortages in gas and electricity, despite improvements in their supplies.

> Credit to private sector has grown at a slower pace as commercial banks continued to lend to the Government.

(b) Per Capita Income, which stood at $1384 last year has increased to increase to $1512, showing a growth of 9.3%;

(c) Inflation, which had averaged around 12% during 2008-13 before our government, was recorded at 4.6% for Jul-May 2014-15, which is lowest in 11 years;

(d) FBR Revenues, which had registered only 3% growth in 2012-13, were up by 16.4% during 2013-14 and have risen by another nearly 13% in the first 11 months of 2014-15 and are expected to close at 15% increase;

(e) Fiscal Deficit, in June 2013 was at 8.8%, which was brought down to 8.2% within weeks. In. 2013-14, this was brought down to 5.5% of GDP. In the current fiscal year we are on course to achieve the target of 5%;

(f) Credit to Private Sector, grew by 11% during 2013-14. It is projected to further grow at 7% during the year. The share of fixed investment in credit has significantly increased compared to last year.

(g) Policy Rate of SBP was 10% in November 2013, which has now been cut to 7% during the current fiscal year. This is the lowest policy rate in decades. The commercial lending rates are determined by the policy rate and have been declining in line with the policy rate. It will help spur investment, as the cost of capital will decline significantly;

(h) Exports were $20.18 billion during Jul-Apr 2014-15 compared to $20.83 billion last year, showing a decline of 3%%, largely due to negative price effect in the global commodity markets. Even though we have exported larger quantities but because of lower international prices, we have realized lower values;

(i) Imports were recorded at $34.65 billion during Jul-Apr 2013-14 compared to $34.09 billion for same period in the current year, showing a marginal decline of 1.61%. More notably, imports of machinery have increased by an impressive 10.3% an indication of rising investment in the economy;

(j) Remittances were recorded at $12.89 billion during Jul-Apr 2013-14, rose to $14.97 billion for the same period this year, showing an increase of 16.14%, which is remarkable and for which I once again salute my expatriate Pakistanis for playing such a critical role in country’s economy;

(k) Exchange Rate has shown remarkable stability in the last more than a year, except for a brief period during August-September due to political instability. Presently, the rate is hovering around Rs.102/$ in the inter-bank market. For an economy like Pakistan, Exchange Rate has a pivotal position, as it impacts pervasively on all other variables. Accordingly, a competitive and market determined stable exchange rate reduces uncertainty and boosts confidence of investors and consumers alike. The exchange rate stability we have achieved has not been witnessed in recent years and is source of rebuilding the credibility of our economy;

(l) Foreign Exchange Reserves were in a precarious state in June 2013. The State Bank reserves were at $6 billion, of which $2 billion were due to a swap that was payable in August and nearly $3.2 billion were falling due for repayments to IMF during the year, bulk of which in the first half. On 10th February 2014, SBP’s reserves had further declined to $2.7 billion. Resultantly, the overall reserves, including those held by commercial banks, were $7.7 billion. It looked as if the notorious rumors were finally becoming reality. However, Alhamdulillah, we have strengthened the economy against fluctuations in external markets. Today country’s foreign exchange reserves have climbed to about $17 billion, of which the SBP reserves are around $12 billion, showing that all the increase in reserves has come in SBP reserves. We are poised to take the reserves level to a historic high of nearly $19.0 billion during the year.

(m) Karachi Stock Exchange (KSE) Index stood at 19,916 on 11 May 2013, the day the elections, has now surged to around 34,000, showing an increase of 70%. Also, this increase meant an increase of about 40% in market capitalization.

(n) Incorporation of New Companies was recorded at 3664 during Jul-Apr last year while during the period in 2014-15, this number has increased to 4100, showing an increase of 11.9%;

6. In addition to above, we have accomplished a number of other successes in different areas, some of which are noted below:

(a) International Sukuk: We entered the international Sukuk market, after 8 years, in November 2014, by issuing a five year Sukuk aiming to raise $500 million, but we received $2.3 billion, nearly five times the subscription and decided to take $1 billion. The proceeds of Euro Bonds and Sukuk have gone to retire an equivalent amount of domestic debt in the SBP and hence there is no increase in Public Debt due to this borrowing.

(b) Eligibility for IBRD: In the last budget I had informed this House about the resumption of policy lending from the World Bank and Asian Development Bank, which was suspended for lack of a stable macroeconomic framework before June 2013. After achieving macroeconomic stability and the requisite increase in foreign reserves, in February 2015, Pakistan is declared eligible again for IBRD facilities.

7. The above review of economic indicators and policy initiatives fully demonstrates the fact that the country has achieved macroeconomic stability. It clearly shows an economy that is moving in the right direction. The expert assessments I will be citing shortly are reflective of the rising confidence of our development partners as well as investors. Pakistan is offering such investment opportunities, which few countries in the region can match. Accordingly, as we enter the third year we are confident that the year would bring even better economic results.

Mr. Speaker,

8. The picture painted above is not based exclusively on our own views. The international analysts and observers are all praise for our performance and potential for future growth. Some of these are worth bringing to the knowledge of this august House:

Japan External Trade Organization (JETRO) has declared Pakistan as likely to be second choicest place for FDI;

Goldman Sach’s Jim O’Neill has forecast that Pakistan would be world’s 18th largest economy by 2050 from its present 44th position;

Overseas Investors’ Chamber of Commerce and Industry (OICCI) has found that Business Confidence Index amongst its members, which stood at -34 has climbed to as high as +18;

Moody’s and Standard and Poor’s have both improved Pakistan’s outlook from negative to stable and recently from stable to positive;

Nielsen’s Global Survey of Consumer Confidence rose to 99 in the 1st quarter of 2014 from the lowest level of 86 in 3rd quarter of 2011;

David Darst, Chief Investment Strategist, Morgan Stanley, has said ‘Pakistan is set to take-off, it is a matter of time’;

Bloomberg News says that despite challenges (a) corporate earnings in Pakistan are soaring and (b) stocks have surged.

The Economist London in its 2nd May 2015 issue has praised Pakistan’s economic recovery;

World Trade Organization (WTO) Trade Policy Review, April 2015 has praised economic performance of Pakistan;

Financial Action Task Force (FATF), the international body for monitoring anti-money laundering and terrorist financing had included Pakistan in its “Grey List” in 2012. After Government’s actions including changes in laws, Pakistan has been included in the “White List” in February 2015.

Mr. Speaker

9. The goals we have set are our guide in the economic journey.

Our actions have been guided by these goals. The brief description of our performance, given above, and what will be highlighted later in this speech, exemplifies the faithfulness and seriousness with which we are working to realize this vision. A democratic government is answerable to Parliament and people and it would be held accountable on its promises made to both of them. While moving on to the third year of our Government, we continue to remain faithful to this vision and the third budget will fully reflect its application in our proposals.

Main Elements of Budget Strategy

Mr. Speaker

10. The main elements of our budget strategy are as follows:

(1) Reduction of fiscal deficit: We will continue to consolidate the gains we have made in reducing fiscal deficit. In 2015-16 we will target a deficit to 4.3% compared to 5% in 2014-15;

(2) Raising Tax Revenues: Part-II of the speech will deal with tax proposals. At this stage, however, I would say that the proposed reduction in deficit will be achieved through a combination of better tax collection and tight expenditure controls;

(3) Continued Focus on Energy: Energy is one of our key priorities. This can be judged by the fact that the Prime Minister is devoting considerable type to oversee developments in the sector. A Cabinet Committee on Energy has been constituted, which is headed by the Prime Minister himself. Keeping in view the current gap in demand-supply of power in the face of high GDP target, we plan to bring 7000 MW on stream besides setting up 3600 MW LNG-based projects. By December 2017, we will bring 10600 MW in the system. Beyond December 2017, other projects such as Dasu, Diamer-Bhasha, Karachi Civil Nuclear Energy and many other projects will also be completed.

(4) Exports Promotion: In this budget, we would be announcing additional measures to incentivize exports and taking other measures to ease the cost of doing business and improving the overall regulatory regime to facilitate exporters.

(5) Investment to GDP Ratio: The Investment-to-GDP ratio, which was registered at 12.4% during 2012-13, improved to 13.4% during 2013-14 and is provisionally estimated at 13.5% for the current fiscal year. The combined effect of increased public sector investments has also played a role in reversing the declining trend. We are projecting this ratio to rise to 16.5% during 2015-16.

(6) Public Debt Management: Debt management has received special attention in our overall efforts for fiscal management. The fiscal consolidation we have achieved has paved the way for a reduction in public debt, which fell from 63.9% in 2012-13 to a now projected level of 62.9% at the close of current fiscal year. In the next three years, Debt to GDP ratio will be brought down to less than 60% in accordance with the provisions of the Fiscal Responsibility and Debt Limitation (FRDL) Act, 2005, InshaAllah.

(7) Benazir Income Support Program (BISP): This program is an effort to provide relief to the poor and vulnerable people of society as a matter of our responsibility and their right. The following have been the main achievements in this program:

i. From Rs.40 billion in June 2013, we have increased the size of the program to Rs.97 billion during the current year. We are further enhancing this allocation to Rs.102 billion, representing more than 155% increase since 2012-13;

ii. Until 2012-13, the cash transfer program was covering 4.1 million families, which would be taken to 5.0 million during the current year. By end of next financial year the number of beneficiary families would increase to 5.3 million, showing an increase of 29% since 2012-13;

Besides the above program, we are providing an additional Rs.2 billion to Bait-ul-Maal for supporting its welfare activities, notably the hospitalization costs for the vulnerable people. The allocation has been increased by to Rs.4 billion for 2015-16, which is 100% increase.

(8) Development & Promotion of ICT Sector:- A number of initiatives were announced in the last budget for the development of promotion Information and Communication Technology (ICT). These initiatives have been operationalized with the following key features:

> Universal e-telecasters: A project for Universal e-telecasters with an investment of Rs.12.0 billion has been approved. In the first phase 500 telecentres would be established in all provinces including FATA. For this purpose, 217 land sites across Pakistan have been selected. Program is at advance stage of implementation and would soon be rolled out.

> Improved Connectivity for Remote Areas: For connectivity of remote area the Government has decided to invest Rs.2.8 billion laying optic fiber cables. Work on this program is going on at fast track basis. In consultation with Provincial Governments 128 tehsils and towns have been identified nationwide, which do not have optic fiber connectivity. Rural telecommunication is another program, which envisages investing Rs.3.6 billion on connectivity of rural un-served areas with the rest of country. Rationalization of International Clearing House (ICH): In October 2012, a new policy for International Clearing House (ICH) was initiated. There have been several problems with the policy as it resulted in losses to users and increase in grey traffic. Since government intends to provide relief to people, therefore, we have reformed this policy and rationalized the rates of international calls. This is benefiting expatriate Pakistanis and promoting legal traffic, which has increased from 367 million minutes per month in November 2014 to 1,100 million minutes per month by now – a three fold increase.

> Prime Minister’s National ICT Scholarship Program: As announced in the last budget, 500 IT scholarships with a total cost of Rs.125 million will be provided to the talented students from rural/non-metropolitan areas. The program provides fully funded 4 years undergraduate degree scholarships in ICT related disciplines in the leading ICT universities of Pakistan. Under the program 480 students availed the scholarship by joining in 21 top Pakistani universities. The program will be continued in the future.

Medium-term macroeconomic framework

Mr. Speaker

11. As always, our budget strategy is embedded in a three year medium term macroeconomic framework spanning the period 2015-16 to 2017-18, the main features of which are as follows:

(a) GDP growth to gradually rise to 7% by FY 2017-18.

(b) Inflation will be contained to single digit;

(d) Fiscal deficit would be brought to down to 3.5% of GDP;

(e) Tax to GDP ratio will be increased to 13%;

(f) Foreign exchange reserves would be maintained above $20 billion, inshaAllah;

12. In view of the performance we have registered in the first two years in office, we are confident to achieve the goals set out in the medium-term framework. We have no doubt that we would remain on course while pursuing the above framework.

Development plan

Mr. Speaker

14. The current Five Year Plan 2013-18 is a comprehensive roadmap and sets timelines for achieving high growth rate. The outlook for 2015-16 is positive with a significant recovery in growth momentum. The growth of GDP for 2015-16 is targeted at 5.5% and gradually steering it to over 7 per cent by 2017-18. In order to achieve the targeted growth rate of 5.5 per cent, the sectoral contributions are agriculture (3.9%), industry (6.4%) and services (5.7%).

15. The plan is geared towards developing human and social capital of the country by enabling universal access to education and health facilities, empowering women and eradicating poverty; thereby capitalizing the demographic dividend and increasing the total factor productivity.

16. Strategies have been devised to encourage public-private partnerships in the development process. Transport, communications, financial, industrial, and services sectors have been identified as important areas with high growth potential. Consequently, comprehensive action plans have been outlined to improve growth rates for these sectors and increase their respective contributions to the GDP.

17. National Development Program of worth Rs.1,513 billion is being earmarked for 2015-16. The development program 2015-16 includes Rs.700 billion as federal PSDP. In addition to increasing the public Investment, concerted efforts are being made to entice the private investment through a variety of mechanisms such as promoting public private partnerships, FDI, creating special economic zones with fiscal incentives.

18. These measures are expected to boost economic growth for key sectors and increase their respective contributions to the GDP.

19. I would now present some highlights of the development budget, focusing mainly on the sectors that will contribute most to economic development.

Water

20. The most important sub-sector claiming resources in our development plan is the water sector, where we are investing Rs.31 billion for projects in various parts of the country. A project that will be the future lifeline of Pakistan is the Diamir Bhasha Dam, which will store 4.7 MAF of water and generate electricity of 4500 MW. We have provided Rs.15 billion for land acquisition during the year and have kept a provision of Rs.6 billion for construction of lot 1 out of 3. In addition, another important hydropower project is Dasu, which will have the capacity to generate 2160 MW. We are committed to make these two dams a reality and preparatory works has already started.

21. Water projects in Baluchistan are the second most important focus of water sector investments comprising construction of delay action dams, flood dispersal structures, canals and small storage dams. Main focus will be on the existing projects that can be completed within the next 1 – 2 years. In this regards, work is in advanced stages on projects such as Kachhi Canal (DeraBugti and Nasirabad), Naulong Storage Dam (JhalMagsi), extension of Pat Feeder Canal to DeraBugti and ShadiKaur Dam (Gawadar). Besides these large projects, we will also invest in building small dams in the province. This year we will start work on Basool Dam in Gawadar.

22. Similarly, in Sindh, projects that are advancing gradually are Rainee Canal (Ghotki and Sukkur), extension of Right Bank Outfall Drain from Sehwan to sea, and Darwat Dam.

In addition, this year we will start the work on MakhiFarash Link Canal project. In Punjab work on channelization of NullahDeg and Ghabir Dam (Chakwal) will commence.

In Khyber-Pakhtunkhwa, other than Dasu, funds will be provided for Keyal Khawar hydropower project, and other small dams. In FATA funding for Kurram Tangi in North Waziristan, and Gomal Zam Dam in South Waziristan will continue.

23. Besides, numerous schemes of lining of water-courses will be undertaken in Khyber-Pakhtunkhwa, Sindh and Punjab to reduce water wastage together with flood protection and drainage schemes all over the country.

Power

24. I have already stated the focus we have on the energy sector.

We have taken a number of steps to address structural problems of the sector including reduction in system losses, improvement in recoveries, elimination of theft and settlement of inter corporate circular debt. However, our real focus is on developing additional resources of energy so as to permanently overcome energy shortages.