Federal Cabinet formally approves budget 2020-21

The Federal Cabinet on Friday formally approved federal budget for the fiscal year 2020-21 which will now be presented before the National Assembly for approval.


According to the sources, Adviser to PM on Finance Abdul Hafeez Shaikh briefed the cabinet on the budget and took them in confidence.

However, the sources stated that there were disagreements in the cabinet whether the government should approve an increase in the salaries of federal government employees. which was later decided not to increase salaries and pensions of government employees this year.

The country’s upcoming budget is expected to include a 12% rise in defence spending and will target growth of 2.3% in the fiscal year 2020-21 as Pakistan battles the coronavirus pandemic.

“The GDP growth for 2020-21 is targeted at 2.3% with contributions from agriculture (2.9%), industry (0.1%) and services (2.8%),” a planning commission working paper seen by Reuters said.

That forecast is much rosier than the 0.2% contraction in 2020-21 projected by the World Bank earlier in June. The multilateral lender sees growth of -2.6% this fiscal year, ending June 30, while the government expects a 0.4% contraction.

Budget outlay

A budget strategy paper in March, just before the pandemic hit, had projected a growth rate of 3% in 2020-21.

The paper, seen by Reuters, foresaw spending of 7.6 trillion Pakistani rupees ($46.76 billion) and a fiscal deficit of 6.9% of GDP — much lower than a current finance ministry projection of over 9% for 2019-20.

Of that, Rs3.235 trillion ($19.90 billion) was earmarked for debt servicing and Rs1.402 trillion ($8.63 billion) for defence — a rise of over 12% from last year.

The March paper projected public sector development spending of 700-900 billion rupees, compared with 650 billion rupees ($4 billion) in the newer planning commission paper.

Officials say the numbers from March’s strategy paper could be tweaked slightly, although the total outlay is likely to be similar.

The National Economic Council (NEC), the top finance body, is meeting Wednesday ahead of Friday’s budget to revise the growth target downward to likely 2.1%, officials said.

Historical borrowing

Hit hard by the coronavirus and with about $10 billion in debt service costs in the coming financial year, Pakistan needs funds to stave off a balance of payments crisis, officials from the finance and economic affair division told Reuters.

“We have plans to mobilise around $14 billion in inflows,” one of the high-ranking officials said — more than Pakistan has borrowed in a single-year before.

That includes $6 billion from multilateral banks, $2 billion from last year’s International Monetary Fund (IMF) bailout package, $3 billion in Chinese commercial loan rollovers, $1.5 billion from Eurobonds, and the rest in bilateral aid and Saudi oil repayment facilitation.

The IMF money is subject to a successful review, he said.



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