$27bn worth of Fiscal adjustment is a lot, painful but necessary. The sharpest of all is tripling VAT from 5% to 15%. This would be inflationary but adjusts the economic balance sheet away from Oil revenues. This is a medium term thumbs up! The government didn’t wait for next year for this.
Similarly, the monthly benefit of 1,000 Riyal for state workers has also ended. Clearly, the pain would be visible in reducing purchasing power for nationals. Plans for capital spending have been cut drastically as well temporarily. There would be a go-slow on developmental spending.
Government is realising a) oil for longer b) fast-forwarding diversification c) adjusting to new realities d) keeping economy afloat. This resonates with Vision 2030 that hinges upon economic diversification.
Pakistan’s budget should continue Fiscal stabilisation and documentation drive. Give targeted relief and avoid concessions. Yes the budgets would be Corona-centric but survival of the business and economy is a must. Expect a dent for middle-upper middle class too. The great income Equaliser is coming.
