SMEs Still in the Lurch
The current environment and the new budget have failed to provide an adequately enabling environment for the growth of Pakistan’s SME sector, writes S. H. Irtiza Kazmi.
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A Budget that Overlooks the Realities of the Future
Pakistan’s budget for 2024-25 has been approved by the National Assembly with a planned expenditure of Rs 18,800 billion. The budget contains a deficit of Rs 8,500 billion and will be managed through record borrowing. The FBR’s collection target has been set at almost Rs 13 trillion, an increase of 38%, with massive taxes imposed on the salaried classes. The government’s borrowing for 2024, at nearly Rs 8,000 billion, was more than the combined borrowing of 2022 and 2023. Our continued reliance on borrowings to finance government expenses is becoming unsustainable.
Pakistan’s economic growth in 2024 was 1.8%, and with a population growth of 2.55%, we are becoming poorer in net terms – and this translates also as negative per capita growth. India achieved a growth of 8.2%, the highest for a major global economy and with a population growth of 1.1%, is prospering. Last year, Pakistan’s anaemic growth was rescued by the agriculture sector’s growth of 6.25%, with the crop sector growing by 11%. Generally, I am wary of government statistics, but this increase in agriculture growth is reflected in the agriexport figures for 2023.
Pakistan’s food exports in the outgoing year stood at over eight billion dollars – a growth of 37%, despite export restrictions on wheat and surplus sugar stocks. The Trade Development Authority of Pakistan was expecting Pakistan’s food exports to cross $10 billion and this target would have been surpassed if the surplus wheat and sugar stocks were allowed to be exported. One thing to be noted is the media coverage of our food exports, which is reported negatively as “raw food exports impacting the local market” or “unbridled food exports.” Very few people are aware that agriexporters are discriminated against because of distortions, such as the minimum export price (MEP). As a result, agricultural exporters are compelled to bring this MEP denominated dollar amount back to Pakistan against their exports, something that is not the case for industrial and other exporters who are allowed to keep the proceeds in the export market. It seems that neither the government nor the State Bank of Pakistan are able to accept that agriexporters can also be agriimporters (or a general importer) and would require the amount earned in the export country to pay against the imports they may require.
The reality is that agriculture in Pakistan faces discrimination in several ways and the unwritten policy is to use the sector to produce cheap food for urban consumers.
Wheat prices are artificially suppressed and the commodity was dealt a further blow when the Punjab government refused to raise wheat prices, resulting in massive losses to farmers who produced the crop with excessively high input costs. To add salt to the wound, the government took the credit for ‘cheap flour’ without realising the future implications for the country’s food security. Even the export of wheat flour continues to be banned.
Agriculture and its subsectors like forestry, fisheries and livestock are devolved subjects to the provinces, although issues such as water and irrigation are covered by both federal and provincial allocations. Pakistan’s reliance on glaciers for fresh water has made us one of the most vulnerable countries in the world, and this is reflected in glacial lake outburst flooding (GLOF) losses in Northern Pakistan as well as rain-induced flooding in Balochistan and Sindh. Punjab, although also susceptible to heat-related crop yield losses, does not face rain damage or drainage issues given its topography and its rivers remaining unbanked (barring a few districts in the south).
The federal Public Sector Development Programme (PSDP) and the provincial Annual Development Programme (ADP) in the 2024-25 budget have given no hint of any preparedness in terms of responding to current or future challenges. Over half of the government expenditure of nearly Rs 19,000 billion is allocated to cover a debt servicing amount of Rs 9,775 billion. The PSDP allocation of Rs 1,400 is too paltry and works out to Rs 5,600 per person. Wasteful spending, corruption and a superficial planning process make this low level of resources even more painful.
There is no doubt that if Pakistan is to become food secure, it cannot continue with its current level of borrowing and wasteful public sector spending; we do not have fiscal space to invest in our irrigation and water infrastructure.
The solution lies in developing a new policy framework where irrigation (including dams), canal networks, food storage and export houses are developed and maintained by the private sector. We know it is easier said than done, given our governments’ historical orientation to keep everything related to infrastructure (like irrigation) and agriculture in the public sector, but this path is unsustainable and needs a directional change. The issue is compounded by the private sector which is happy to manufacture subsidised fertilisers but remains unwilling to address the vital vein of agriculture – our canal network. The recent rush towards corporate farming will not work so long as Pakistan faces infrastructural constraints; and, the Special Investment Facilitation Council (SIFC) Green Initiative should be geared to respond to infrastructural needs rather than compete with the growers in farming. The SIFC Green Initiative is working on the erroneous premise that land is the constraining factor. It is in fresh water where investment and management expertise are needed.
What the future could look like for Sindh is illustrated by what the province experienced in June this year when one of the gates of the Sukkur barrage collapsed. Although the gate has now been temporarily repaired by the Sindh Irrigation Department and irrigation has been restored to the canals, what is clear is that managing vital infrastructures like barrages and main canals is beyond the capacity of government bureaucrats. More importantly, governments (federal and provincial) do not have the fiscal capacity to develop and manage the country’s irrigation and food security infrastructure, which is why government policy planners must make way for the private sector.
The budget for 2024-25 envisages a revenue growth of 38%. Since Pakistan has entered into a new agreement with the IMF deal, there have been more pledges to tax agricultural income. However, given the presence of adverse trade terms and export controls, it is unfair to tax farmers to the tune of 35 to 45% as per the budget announcements. The imposition of an 18% sales tax on branded milk is a very poor decision. According to a Bloomberg report, milk in Pakistan is more expensive than in Europe and America, and this is reflected by the levels of stunting in Pakistan – according to reports, over 40% of our children are stunted. My own example might be helpful. I was operating a tiny integrated dairy farm, with milk hygienically packed and delivered to consumers under a brand name. Now, with the imposition of the sales tax, I will no longer be able to brand my milk products. As it happened, a friend working for a US private equity firm was encouraging me to expand this model. Gone are those dreams.
Aijaz A. Nizamani is retired Secretary, Forest & Wildlife and a hands-on farmer. aijazniz@gmail.com
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Wheat prices are artificially suppressed and the commodity was dealt a further blow when the Punjab government refused to raise wheat prices, resulting in massive losses to farmers who produced the crop with excessively high input costs. To add salt to the wound, the government took the credit for ‘cheap flour’ without realising the future implications for the country’s food security. Even the export of wheat flour continues to be banned.
Agriculture and its subsectors like forestry, fisheries and livestock are devolved subjects to the provinces, although issues such as water and irrigation are covered by both federal and provincial allocations. Pakistan’s reliance on glaciers for fresh water has made us one of the most vulnerable countries in the world, and this is reflected in glacial lake outburst flooding (GLOF) losses in Northern Pakistan as well as rain-induced flooding in Balochistan and Sindh. Punjab, although also susceptible to heat-related crop yield losses, does not face rain damage or drainage issues given its topography and its rivers remaining unbanked (barring a few districts in the south).
The federal Public Sector Development Programme (PSDP) and the provincial Annual Development Programme (ADP) in the 2024-25 budget have given no hint of any preparedness in terms of responding to current or future challenges. Over half of the government expenditure of nearly Rs 19,000 billion is allocated to cover a debt servicing amount of Rs 9,775 billion. The PSDP allocation of Rs 1,400 is too paltry and works out to Rs 5,600 per person. Wasteful spending, corruption and a superficial planning process make this low level of resources even more painful.
There is no doubt that if Pakistan is to become food secure, it cannot continue with its current level of borrowing and wasteful public sector spending; we do not have fiscal space to invest in our irrigation and water infrastructure.
The solution lies in developing a new policy framework where irrigation (including dams), canal networks, food storage and export houses are developed and maintained by the private sector. We know it is easier said than done, given our governments’ historical orientation to keep everything related to infrastructure (like irrigation) and agriculture in the public sector, but this path is unsustainable and needs a directional change. The issue is compounded by the private sector which is happy to manufacture subsidised fertilisers but remains unwilling to address the vital vein of agriculture – our canal network. The recent rush towards corporate farming will not work so long as Pakistan faces infrastructural constraints; and, the Special Investment Facilitation Council (SIFC) Green Initiative should be geared to respond to infrastructural needs rather than compete with the growers in farming. The SIFC Green Initiative is working on the erroneous premise that land is the constraining factor. It is in fresh water where investment and management expertise are needed.
What the future could look like for Sindh is illustrated by what the province experienced in June this year when one of the gates of the Sukkur barrage collapsed. Although the gate has now been temporarily repaired by the Sindh Irrigation Department and irrigation has been restored to the canals, what is clear is that managing vital infrastructures like barrages and main canals is beyond the capacity of government bureaucrats. More importantly, governments (federal and provincial) do not have the fiscal capacity to develop and manage the country’s irrigation and food security infrastructure, which is why government policy planners must make way for the private sector.
The budget for 2024-25 envisages a revenue growth of 38%. Since Pakistan has entered into a new agreement with the IMF deal, there have been more pledges to tax agricultural income. However, given the presence of adverse trade terms and export controls, it is unfair to tax farmers to the tune of 35 to 45% as per the budget announcements. The imposition of an 18% sales tax on branded milk is a very poor decision. According to a Bloomberg report, milk in Pakistan is more expensive than in Europe and America, and this is reflected by the levels of stunting in Pakistan – according to reports, over 40% of our children are stunted. My own example might be helpful. I was operating a tiny integrated dairy farm, with milk hygienically packed and delivered to consumers under a brand name. Now, with the imposition of the sales tax, I will no longer be able to brand my milk products. As it happened, a friend working for a US private equity firm was encouraging me to expand this model. Gone are those dreams.
Aijaz A. Nizamani is retired Secretary, Forest & Wildlife and a hands-on farmer. aijazniz@gmail.com
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Related Stories
The solution lies in developing a new policy framework where irrigation (including dams), canal networks, food storage and export houses are developed and maintained by the private sector. We know it is easier said than done, given our governments’ historical orientation to keep everything related to infrastructure (like irrigation) and agriculture in the public sector, but this path is unsustainable and needs a directional change. The issue is compounded by the private sector which is happy to manufacture subsidised fertilisers but remains unwilling to address the vital vein of agriculture – our canal network. The recent rush towards corporate farming will not work so long as Pakistan faces infrastructural constraints; and, the Special Investment Facilitation Council (SIFC) Green Initiative should be geared to respond to infrastructural needs rather than compete with the growers in farming. The SIFC Green Initiative is working on the erroneous premise that land is the constraining factor. It is in fresh water where investment and management expertise are needed.
What the future could look like for Sindh is illustrated by what the province experienced in June this year when one of the gates of the Sukkur barrage collapsed. Although the gate has now been temporarily repaired by the Sindh Irrigation Department and irrigation has been restored to the canals, what is clear is that managing vital infrastructures like barrages and main canals is beyond the capacity of government bureaucrats. More importantly, governments (federal and provincial) do not have the fiscal capacity to develop and manage the country’s irrigation and food security infrastructure, which is why government policy planners must make way for the private sector.
The budget for 2024-25 envisages a revenue growth of 38%. Since Pakistan has entered into a new agreement with the IMF deal, there have been more pledges to tax agricultural income. However, given the presence of adverse trade terms and export controls, it is unfair to tax farmers to the tune of 35 to 45% as per the budget announcements. The imposition of an 18% sales tax on branded milk is a very poor decision. According to a Bloomberg report, milk in Pakistan is more expensive than in Europe and America, and this is reflected by the levels of stunting in Pakistan – according to reports, over 40% of our children are stunted. My own example might be helpful. I was operating a tiny integrated dairy farm, with milk hygienically packed and delivered to consumers under a brand name. Now, with the imposition of the sales tax, I will no longer be able to brand my milk products. As it happened, a friend working for a US private equity firm was encouraging me to expand this model. Gone are those dreams.
Aijaz A. Nizamani is retired Secretary, Forest & Wildlife and a hands-on farmer. aijazniz@gmail.com