Text of budget speech

ISLAMABAD (APP) - Following is the text of budget speech of Minister of State for Finance and Economic Affairs, Hina Rabbani Khar in the National Assembly here on Saturday:
I rise to present the Budget for the Fiscal Year 2009-10.
Madam Speaker!
I have the honor to be the first woman in the history of Pakistan to present a budget before the august House. It is indeed the privilege of the Pakistan People’s Party to have given the country its first woman Prime Minister, Mohtarma Benazir Bhutto Shaheed. The People’s Party also has the singular honour of nominating the first woman Speaker of the National Assembly in Pakistan. These are important milestones in our quest for women empowerment and gender equality.
2. The efforts of the govt to manage the economic and financial affairs of the country need to be viewed in the context of the prevailing state of security in the country. Pakistan today is not simply a frontline state against the war on terror; in fact we are today fighting insurgency and terrorism within the country. The war on terror has already cost us over $ 35b since 2001-02 in economic costs. We now face the prospect of incurring huge costs on account of counter-insurgency expenditures. We have to meet the maintenance and rehabilitation costs of almost 2.5m brothers, sisters and children displaced as a result of the insurgency. The International community has pledged its support for this human cause. However, your govt is fully conscious of its responsibility and has allocated Rs. 50b, I repeat Rs. 50b, in the budget 2009-10 for the relief, rehabilitation, reconstruction and security of the internally displaced persons. I also take this opportunity to salute the efforts of the people of Pakistan in contributing generously to the relief effort and demonstrating that we are all one and stand united in the face of terrorism. I may also express the gratitude of the govt to all those generous households who have opened their homes and hearts to the displaced people in the true spirit of Islam.
3. Our armed forces are in the forefront of the war against terror and in fighting insurgency in the country. Our western border is most volatile and faces the brunt of insurgency. The President of Pakistan has been pleased to announce an increase in the allowances of the personnel of armed forces deployed in the western theatre, equal to one month’s basic pay with effect from 1st July, 2009.
He has further announced that this benefit be extended to the entire armed forces from 1st January, 2010. The govt is in complete support of the President’s decision. Today, the nation stands behind our valiant armed forces. No amount of compensation is adequate enough to cover the risk to one’s life. I hope this small gesture on the part of the govt helps in building the morale of our jawans and officers in the war against terror.
4. While presenting last year’s budget the govt had given a detailed account of the economy as was inherited by us from the previous govt. We had highlighted that our economy could not sustain a high level of artificial growth. We had presented that sustainable growth was only possible through investments in the real sectors of the economy that is, agriculture and industry. These, unfortunately, were neglected in the past. Instead growth was fuelled through high consumption and extensive luxury imports and those too financed through external borrowings. No wonder the fiscal deficit mounted to 7.6% of GDP, the current account deficit became unmanageable, there was a run on foreign exchange reserves and the stock market crashed. More importantly, inflation started to rise steeply and peaked at 25% in October 2008. In the face of these developments the economy suffered but the poor of Pakistan suffered the most.
5. Surely this state of affairs was intolerable! The govt reacted to this by formulating a Nine-Point Agenda of economic and social recovery. The first pillar of our agenda was to stabilize the economy. As a result of our efforts, the fiscal deficit would decrease by 3.3 percentage points in 2008/09. The current account deficit was brought down from a high of 8.5% in 07-08 to 5.3% of GDP in 2008-09.
It is now universally acknowledged that reducing inflation is the best recipe for reducing poverty. Through the efforts of your govt, inflation declined from 25% to 14.4% in May, 2009. Inshallah, it is expected to be in single digit by the end of the next fiscal.
6. While stabilization of the economy was necessary it was achieved at a cost. A tight monetary policy coupled with strict public expenditure management adversely impacted access to capital in the private sector and a reduction in the public sector development programme. The biggest casualty of stabilization was economic growth which declined to around 2%. The contraction in the economy adversely affected growth in manufacturing. However, our pricing policy for Agriculture sector helped this sector in recording a growth of 4.7% in 08-09 as compared to 1.1% in the previous year. The govt was fully conscious that stabilization and a contracting economy would impact the poor adversely. That is why it triggered the 2nd pillar of its nine point agenda that is, social protection. Through the Benazir Income Support Program (BISP) we targeted the poorest of the poor through an income grant of Rs. 1000 per month, allocating Rs. 34b for the programme. In the next financial year we propose to allocate Rs. 70b for BISP to bring over 5m households in the ambit of the programme.
7. Having attained a certain level of stabilization it is now time to move towards growth by targeting the real sector of the economy that is Agriculture and Industry. Beginning with this year’s budget we propose to announce policies and undertake budgetary and legislative measures which would put our real sectors of the economy onto the path of greater productivity. This paradigm shift would help the country in attaining sustainable growth which would help in the reduction of poverty. Madam Speaker, we propose to pursue growth with equity. Madam Speaker, we propose to pursue stabilization with a human face. This govt believes that the focus of govt’s policy and investment program has to be the well being of the people, especially the poor segments of our society.
8. The govt is managing the affairs of our country within a strategic policy framework expressed in its Nine Point Agenda of economic and social recovery. I take this opportunity to highlight these nine pillars:
I. Macroeconomic Stability and Real Sector Growth.
II. Protecting the Poor and the Vulnerable.
III. Increasing Productivity and Value Addition in Agriculture.
IV. Making Industry Internationally Competitive.
V. Capital and Finance for Development.
VI. Removing Infrastructure Bottlenecks through Public Private Partnerships.
VII. Integrated Energy Development Programme.
VIII. Human Capital Development for the 21st Century.
IX. Governance for a Just and Fair System.
9. The budget 2009-10 has been prepared to obtain the twin purposes of stabilization with a human face and growth with equity. I would wish to clarify as to what stabilization means. Stabilization is essentially an expression which advises households, organizations and govts to live within their means. Surely, this is what we all want. And if additional resources become available we need to use these to obtain the best dividend for our people. As a measure of support towards attaining a reasonable growth target the total expenditure, including Provinces, is estimated at Rs. 2897.4b. The total revenue is estimated at Rs. 2174.9b. The overall fiscal deficit of Rs. 722.5b would be 4.9% of the GDP. This deficit would be met through external financing of Rs 264.9b and domestic financing of Rs. 457.6b. Pakistan is likely to receive external resources equivalent to 1.2% of its GDP (Rs. 178b) from pledges made in the Donors’ Conference at Tokyo. We further expect resources equivalent to 0.3% of the GDP (Rs. 48b) for expenditure on internally displaced persons. In essence the real deficit would be 3.4% of the GDP.
10. The core budget of the federal govt estimates net revenues of Rs 1377.5b with a current expenditure of Rs 1699.19b. The development expenditure (including Provinces) is estimated at Rs. 783.1b against the revised estimates of Rs. 421.9b, an increase of 85%. This increase is unprecedented. The Public Sector Development Programme approved by the National Economic Council is pitched at Rs. 626b in BE 2009-10 against Rs. 359b in RE 2008-09. It is expected that full utilization of the development allocation would strongly assist in revival of growth.
11. May I offer a note of caution at this stage. Pakistan has one of the lowest tax to GDP ratios in the world. In the outgoing year we were only able to attain tax revenues equivalent to 9% of our GDP. We expect to improve our tax to GDP ratio by 0.6% in the next financial year. Allow me to state that if we as a nation do not imbibe the tax culture, if each citizen capable of paying tax does not do so, Pakistan shall never be able to stand on its own feet. It is, therefore, imperative that each one of us as a citizen of this great country meets his or her tax obligation. While govt would be undertaking deep rooted reforms in tax policy and its administration, success of any initiative would hinge on the support given by the entire nation. We have to broaden our tax base; there is no escape from this reality.
12. The govt made a commitment that it would pursue stabilization with a human face. Our tax and duty measures in Budget for Fiscal Year 2009/10 would revolve around the following concepts:-
Provide protection to the poor and vulnerable against the current economic downturn;
Revive manufacturing and industry, especially export-oriented industry;
Broaden the tax base instead of overburdening the existing taxpayers; and
Restrain unnecessary imports to improve the Balance of Payment position.
13. As a measure to broaden the tax base we had desired that the provinces bring additional services into the net of sales tax. We had also desired that the provinces impose capital gains tax on immovable property. This would have marked a beginning towards further broadening of the tax base. However, the provinces would much rather wish to discuss these issues in meetings of the National Finance Commission. While we respect the decision of the provinces none-the-less measures would be taken in the Budget 2009/10 to bring additional services into the excise net as well as continue with Capital Value Tax. On reaching agreement with the provinces in the NFC discussions, the Capital Value Tax as well as excise on services would be considered for replacement by provincial taxation on these subjects.
I. MACROECONOMIC STABILITY AND REAL SECTOR GROWTH
14. The immediate threat to economic stability and the servicing of international debt obligations were overcome through a homegrown Macroeconomic Stabilization Programme. The Programme has already ensured adjustment in petroleum prices and significant cuts in expenditures to reduce the budgetary deficit; while keeping a tight monetary policy in place. These measures are paying dividends under precarious global and domestic conditions. Recent trends in most macroeconomic variables also suggest that a disciplined implementation of this Programme has started paying off.
During the Fiscal Year 2009/10 real GDP is expected to grow by 3.3 percent and by 4 and 4.5 percent during Fiscal Years 2010/11 and 2011/12, respectively.
This will be contributed by sectoral growth rates of agriculture amounting to 3.8 percent; manufacturing totaling to 1.8 percent; and services contributing 3.9 percent.
For Fiscal Year 2009/10 the inflation target is 9.5 percent, which will be brought down to 7 and 6 percent during Fiscal Years 2010/11 and 2011/12, respectively.
A targeted decrease in current expenditure to 15.3 percent of GDP in FY 2009/10 and 14.7 percent of GDP in 2010/11, owing to elimination of unproductive subsidies is planned in order to maintain the fiscal deficit at sustainable levels.
The Govt is going to take all necessary measures to ensure documentation of the economy and broadening of the tax base in order to shift reliance on domestic resource mobilization.
Total revenue will grow by 15.7 percent and Federal Board of Revenue collection is projected to grow by 16.8 percent.
Tax to GDP ratio will be 9.6 percent, with measures, as against 9 percent during Fiscal Year 2008/09.
Revenue as a percentage of GDP is projected at 14.7 percent in Fiscal Year 2009/10 and will increase to 15.1 percent during Fiscal Year 2010/11.
II. TARGETING THE POOR AND THE VULNERABLE
15. The previous govt pursued a policy of trickle down, expecting that the benefits of growth would automatically reach the poor. The flaw in this strategy was that the rich became richer and the poor became poorer. Our govt is tackling the issue of poverty by launching a frontal attack against it. Our efforts at poverty-reduction aim to eliminate poverty.
16. As a tribute to our leader, Shaheed Mohtarma Benazir Bhutto, who laid down her life for democracy, the introduction of the govt’s flagship programme, named ‘Benazir Income Support Programme’ to provide direct cash transfers to the poor, is proof of its commitment to reach out to the most vulnerable to share their burden and ease their misery as much as possible. Following our Quaid, Shaheed Zulfiqar Ali Bhutto’s words, ‘The Masses Will Rule’.
17. The conception behind the Benazir Income Support Programme was not only providing financial assistance to the needy but also to ensure women empowerment and child care. During Fiscal Year 2008/09, Rs 22b was distributed to 1.8m beneficiaries. During fiscal year 2009/10, it is proposed to increase the allocation of BISP to Rs 70b. Madam Speaker, this would constitute more than 200 percent increase; I repeat more than 200 percent increase over the last year’s distribution. Fivem families would benefit from this increase in the coming financial year. A programme for the Internally Displaced Persons has also been started by Benazir Income Support Programme wherein the Internally Displaced families are being identified and cash grants are being paid to them on regular basis.
18. In the short to medium term, the Benazir Income Support Programme will also serve as a platform for complementary social assistance programmes, the main being health insurance for the poor and the vulnerable. This will cover full hospitalization, pregnancy, daycare treatment, diagnostic tests and accident compensation for earning members of the family to a maximum limit of Rs 25,000/- per family per year. In addition, cash transfer programmes will be complemented to promote household independence via various poverty exit strategies, which can help to upgrade the poor beneficiaries to the level of selfsufficiency by various means including transition to Conditional Cash Transfers; training and employment of one person per household; and provision of workfare through small public works under a social mobilization programme initiatives. The latter programme is based on the concept of small development schemes for construction of paved streets and water and sanitation facilities at the local level with help of community contribution.
19. I hold out an assurance that the govt is committed to ensuring complete transparency in the management of BISP. A census would be completed within three months in 16 districts of Pakistan as a pilot to bench mark incomes. This would be extended to the entire country within the calendar year. The Benazir Income Support cards would serve as vehicles of transparent management and addressing the needs of the vulnerable.
20. The govt also plans to bring in legislation during the next financial year for creating a social security protection programme for the haris. It is the firm resolve of the govt to mainstream the marginalised haris, provide them with social protection available to other labour in the country and to make them proud citizens of Pakistan.
21. The govt also plans to revamp the Ministry of Social Welfare by replacing it by a Ministry of Social Protection and Development in order to provide a common platform for safety nets and enhanced institutional capacity for social service delivery.
Peoples’ Works Programme
22. This programme covers basic areas like provision of electricity, gas, farm to market roads and water supply. An allocation of Rs 35b is proposed in the Fiscal Year 2009/10 for this purpose. This will create sizable employment opportunities and, therefore, will increase the incomes of the less privileged.
Workers Welfare
For the Fiscal Year 2009/10, an amount of Rs 10.8b has been allocated for different Worker Welfare development schemes in the housing, health, education and technical education sectors. Quota has been abolished with the result that every worker will now be provided marriage grants irrespective of number of daughters. The rate of marriage grant has been increased from Rs 50,000 to Rs 70,000 per daughter. Construction of 9,469 housing units and flats for industrial workers is also proposed.
The President of Pakistan has directed to take necessary measures for empowerment of employees of State Owned Enterprises through their representation on the respective Boards by transferring 12 percent shares to employees in order to revamp privatization process.
Microfinance
Microfinance plays a critical role in improving lives of the poor and particularly women.
The Govt has set the target to increase outreach of the microfinance services from 2m to 3m borrowers in fiscal 09/10.
Housing
23. Our founder leader Shaheed Zulfiqar Ali Butto’s vision and foresightedness identified four decades ago that housing is the basic necessity and raised the slogan of Roti, Kaprha Aur Makan.
24. We, being the followers of Shaheed Zulfiqar Ali Bhutto, have taken the following initiatives to turn the dream of our leader into a reality. Affordable housing under a phased programme for the low-income population through community participation and squatter- settlement regulation; and
For facilitation of working journalists, the Ministry of Information & Broadcasting managed to reserve a good number of residential plots in Islamabad for them.