Unemployment rate to jack up to 15.5m in case of partial lockdown.

ISLAMABAD -- PRIME Institute, an economic think tank, launched a policy note on Federal Budget 2020-21. 'Federal budget speech 2020-21 notes that the expected recession due to COVID-19 calls for an expansionary fiscal policy.

An expansionary fiscal policy aims for greater public spending, which drives up aggregate demand, generating employment opportunities and economic activity,' PRIME noted. Having mentioned the need for an expansionary fiscal policy without exposure to unsustainable deficit financing, the federal minister presenting the budget speech went on to present a budget with a stated total federal expenditure of Rs7, 137 billion as against the revised budget estimates of Rs8345.3 billion incurred in FY 2020. As for sustainable debt financing, this year's budget entails further debt assumption, as the primary balance is still in the negative.

The government is terming the non-increase in income tax rates as a relief in itself. The budget estimates Rs2036.8 billion as collection through taxes on income. This estimate is an increase of about 25.9 per cent over revised estimates of FY 2019-20. It is not easy to fathom how the government plans to increase its income tax collection by almost 26 per cent, when the economy has been forecasted to contract by 1.5 per cent in real value terms.

PRIME Institute also notes that this fiscal year, Pakistan has faced restrained economic activity in the last quarter. Since COVID-19 is here to stay for the time being, it should come as no surprise if the country faces another three months of constrained economic activity. So if in the next fiscal year too, one quarter is to see constrained economic activity, and the tax rate remains the same, the budgeted increase of 25.9 per cent in income tax collection should be eyed with caution.

Further the policy note states that the Budget allocation for Defence Affairs and Services went up by 5 per cent, while allocation for Social...