Is the budget sustainable for Pakistan's economy.
The recent budget for FY 2019-20 has outlined incentives for some industries while other may feel the pinch. On a macro level, the gainers and losers are as follows:
GainersFurnitureTourismPaper/PackagingPharmaTelecomLosersSteelTextileSportsCementSurgicalTobaccoCottageAutoLeatherCarpetCNGBeverages
On a micro level, it appears that the urban middle class is likely to get hit by the budget. The rising inflation and higher taxes will squeeze both nominal and real income of all tiers of the middle class. The massive depreciation (worst form of taxation) has already eroded the value of fixed and liquid assets, depriving middle class people of whatever little comfort they drew from the worth of their holdings.
The government has also announced that it will not borrow from SBP from 1st July 2019 onwards. If it intends to rely on borrowings from commercial banks, then it may be beneficial for the banks but private sector will be crowded out. Excessive government borrowings may deteriorate banks' advances to deposit ratio as banks will indulge in parking bulk of their deposits in government debt securities instead of lending to the private sector which will lead to financial disintermediation.
The most immediate and visible consequence of this budget is the erosion of the purchasing power of the common man. On a more macro level, with the global rise in fuel prices and given our current exporting industries, the cost of production will increase, making our goods less competitive in the global market. There are three adverse consequences of this budget which we need to look at over the coming year:
The impact of increased taxation on people's spending capacity - for example, a person making Rs. 50,000 a month will have to pay income tax, along with exposure to the broader impact of inflation due to the devaluation of the rupee and increase in sales...
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