On Monday, Prime Minister’s advisor of economic affairs, Dr Hafeez Shaikh, presented the Economic Survey of Pakistan for the fiscal year of 2018-19. Since the economy failed to meet nearly all the targets placed in the previous year’s budget, the economic advisor’s tone was clearly excuse-driven, with a clear strategy of putting the blame of the poor economic performance of this year on the previous government. Poor economic performance it really was. Not only did we not achieve almost all of the economic targets, we fell short by a sizeable margin. True, the targets placed in the previous budget were highly unrealistic, as it seemed even then that the PML-N government had accepted that they will not be winning the 2018 elections and returning to power, and hence they were not going to be answerable for such outlandish targets. Yet, some of the indicators in the economic survey have given an even more damning verdict of the economic performance of this government’s first 10 months than were predicted.

GDP growth rate was just above 3%, the worst of this decade, and according to Dr Hafeez Pasha, this figure is inflated, as in truth it was around 2.5%. All the sectors of economy performed poorly, especially the agricultural and manufacturing sectors which missed their targets by more than double, with major crop yields experiencing negative growth rates. Fiscal deficit rose to 6.5% of the GDP, while investment-to-GDP ratio has fallen to a 7 year low. Inflation has surged to 7.5%, while even though current account deficit has fallen, exports have not grown even after devaluing of the Rupee over the last 18 months or so. The government has also incurred a considerable revenue shortage. There is a negative feeling among investors and traders regarding the economy which has led to the worst growth in investment the country has seen in a decade.

In this backdrop of negativity, Hammad Azhar, the Minister for State for Revenue, presented the 1st budget of the incumbent government on Tuesday, amid rancor and loud protests from the opposition. First we must clarify; the budget was expected to be tough. With Pakistan going into an IMF program and with worrying external account deficits and debt burdens thanks to the previous government’s consumption led growth policies, Pakistan’s economy needs to stabilize and get on its own feet to tackle the massive challenges of debt and deficits that have plagued the economy, and hence austerity is currently the way forward for the coming couple of years to take the economy out of the constant balance of payments crisis it faces after every five years or so.

Let’s first state the basics of this budget. The government has proposed that it will collect revenue of around Rs 6700 billion, with tax collection projected at Rs 5555 billion, with provinces getting Rs 3250 billion of the revenue. The rest of it will be spent on the massive debt and interest repayments (Rs 2900b), defence (Rs 1150b), grants and transfers (Rs 830b), subsidies (Rs 270b), running of the government expenditure (Rs 430b), along with other expenditure, which will result in the highest budget deficit in the country’s history of Rs 3150 billion (7.2% of GDP). Multiple new taxes have been imposed, while salaries of only the less well-off public servants have been increased. Moreover, the zero-rated five major export sectors have now been taxed.

The biggest problem that this budget has is its outlandishness. Yesterday, Dr. Hafeez Pasha called this budget unrealistic and impractical, to the point of it not even being taken seriously. The first unrealistic target is the tax revenue target of Rs 555 billion. This year Pakistan will find it very difficult to collect Rs 400 billion in taxes, falling short by Rs 50 billion. How will they increase this by around 40% is unfathomable. Through contractionary policies, they’ve slowed down the economy so much that it will reduce spending, and a fall in spending will result in lower tax revenue collection. Moreover, a fall in investment means that corporation taxes will fall as well, while unemployment is bound to rise which will lower income tax returns as well. And then incorporating privatization receipts in the budget is an incorrect approach, as random privatization cannot be accounted for in advance in a budget. Another unrealistic assumption made is that the provinces would make a surplus of Rs 420 billion, which is ridiculous to assume, as any savings made by the provincial governments will obviously be spent on their respective constituents, instead of handing it over to the federal government. Moreover, the expenditure allocated to PTI’s dream project of building homes for the poor is also questionable, given such a massive projected fiscal deficit.

Another problem with this budget, the one that may get this government some very difficult few months ahead, is the regressive nature of this budget. Regressive means any policy of the government that affects the poor much more harshly than the rich. This budget is full of policies tools that do exactly that. Firstly, almost 70% of the increase in projected tax collections comes from indirect taxes. Indirect taxes directly affect the massive, particularly the middle class and the poor. The most important among them is the increases in sales tax on sugar, cooking oil, and some other important edible items. This will make basic food items expensive for the middle class and the poor, which will lower the purchasing power of such people. Inflationary pressures will become even worse when electricity and gas become more expensive. Moreover, disposable incomes of the middle class will take a hit. The new tax brackets have been reduced, with people who only earn Rs 50,000 per month now liable to pay Rs 3,500 in income tax, while before they were exempt from paying taxes. Lastly, a tax on the previously zero-rated exports industries will result in further unemployment, especially of the middle class labor, which will only increase poverty. That will be coupled with a fall in exports, making the current account crisis even worse.

Being a Khan supporter and PTI voter, I do not hesitate in stating my immense disappointment with the incumbent budget. This budget not only is in stark contrast to PTI’s election manifesto, it will make an already sluggish economy worse, and will negatively affect the common man’s living standards. Not even the most passionate of speeches can take Khan sahb out of this self-created mess.