What is national budget and how does it impact the economy?
With the coronavirus pandemic having made a devastating blow to an already bleak economy, the Imran Khan-led government is expected to declare on June 12 what is called the ‘corona budget.’
Pakistan’s economy is expected to contract for the first time in 68 years in the outgoing fiscal year due to the adverse effect of the novel coronavirus coupled with economic stabilization policies that had hit the manufacturing sector well before the deadly pandemic.
What is a budget?
A budget is an estimate of income and expenditure for a future period. It is an important element in the process of planning and control of the financial situation of a country, and its purpose is made vital because income and expenditure do not exist simultaneously.
The national budget puts up estimates of government expenditure and revenue for the financial year to be presented to the Finance Minister. The minister reviews the economic affairs and government expenditure of the previous year, and makes predictions for the coming year and announces alterations in taxation.
What is a government budget?
The government budget is an itemized account of the payments received by the government, i.e taxes and other fees, and the payments made by the government (purchases and transfer payments). A budget deficit takes place when a government spends more money than it takes.
Pakistan recorded a Government Budget deficit equal to 5.80 percent of the country’s Gross Domestic Product in 2019.
How does it affect the economy?
The budget impacts the economy of a country, interest rate, as well as the stock markets. The finance minister’s expenditure and investment of money influence the fiscal deficit. The deficit and the means of financing affect the money supply and the interest rate in the economy. If the interest rates are high, the capital is of a higher cost for the industry. If there are lower profits, stock prices will be lower.
The fiscal steps that the government is implementing impact public spending. An increase in direct taxes, for example, would increased disposable income, thus raising demand for goods. This decrease in demand would lead to a decrease in production, thereby affecting economic development.
Likewise, an increase in indirect taxes will also lower demand. This is because indirect taxes are mostly passed on to customers in the form of higher prices in part or in full. Higher prices mean a decline in demand and this in effect will reduce corporate profit margins, slowing down production and growth.
Pakistan’s federal budget stood at Rs. 7.022 trillion in 2019. This year will see the budget contracted within the crippled economic framework left amid the pandemic.
Last year, the minister had claimed that the overall federal revenues were projected at Rs 6,717 trillion, which was 19 per cent higher than Rs 5,661 trillion revenues from the previous year.