As Finance Minister Abdul Hafeez Sheikh presents the budget this Friday (06-03-2012),
the last of the incumbent PPP-led government, it is high time to make
an attempt at discovering what is hidden story behind the numbers. The
idea is to enable the reader to: 1) understand the main issues involved
in the budget; 2) comprehend the fierce competition between different
sectors vying for the scarce resources; 3) read between the lines
because the government mostly hides its inefficiency through jugglery of
figures; 4) evaluate the government’s revenue and expenditure
priorities over the past four years with a view to gauging which sectors
have won and which ones have lost during this period; and 5) do a basic
level analysis of the budget as the finance minister unveils the budget
proposals. We have identified eight areas of the budget that need
special attention and we request the finance minister to clearly spell
out his government’s policy reagrding them. We also request him to use a
uniform measure for the comaprison of budgetary figures: either
‘estimates’ or ‘revised estimates’.
Resources mean how much money the government will gather in a
year, and how it will gather it; while expenditure means how much money
the government will spend in that same year, and on what.
In the
outgoing budget, the total resources (internal and external) were
estimated at Rs2,463 n; while the total expenditure (current and
development) at Rs2,767 billion. The deficit is covered through bank
borrowings.
Issue: Overestimation of resources and underestimation of expenditure.
Current or recurring expenditure includes government spending on
salaries, rentals, operating expenses of public-sector industries and
payment of interest on loans; while development expenditure includes
government spending on new projects – schools, health units, roads,
dams, etc. – that have a life of more than one year.
In the outgoing budget, current expenditure was estimated at Rs2,315 billion; while the PSDP at Rs730 billion.
Issue: Overestimation of the PSDP and underestimation of current expenditure.
Direct taxes are paid directly to the government and only the
people above a certain level of income have to pay them; while indirect
taxes (mainly sales tax, customs duties and federal excise) are levied
on commodities and transactions, and are paid to a second party, which
then passes them onto the government.
In the outgoing budget, direct taxes was estimated at Rs627 billion; while indirect taxes at Rs1,052 billion.
Issue: Overestimation of direct taxes and underestimation of indirect taxes that affect all citizens.
Domestic debt servicing implies the interest paid on the money
borrowed by the government from its own people; while foreign debt
servicing implies the the interest paid on the money borrowed from
external sources.
In the outgoing budget, domestic debt servicing was estimated at Rs715 billion; while foreign debt servicing at Rs76 billion.
Issue:
Pakistan’s major problem is domestic debt, not foreign debt, since the
interest on the former is many times higher than on the latter.
Mega projects such as highways and large dams have been a
favourite with successive Pakistani governments because of the hype they
create; while micro projects such as small dams or rural roads have
received little attention over the years.
Issue: The centralised
structure of a mega project makes its public scrutiny difficult. Also,
such projects are prone to corruption in the form of kickbacks during
the award of contracts. In comparison, micro projects can be better
managed with people’s involvement
Tertiary education refers to public sector universities and colleges; while primary education to public sector primary schools.
In
the outgoing budget, development budget for tertiary education was
estimated at Rs29.111 billion; while for primary education at Rs4.148
billion.
Issue: Because of the lack of absorption capacity at the
primary level, successive governments have allocated more funds to
tertiary education, though the country’s foremost need is universal
primary education.
Budget-making is a process of opting for some of the available
priorities out of many. Traditionally, the PPP favours the agriculture
sector, while the PML-N and dictatorial regimes favour the industrial
sector.
In the outgoing budget, subsidies were estimated at Rs166
billion but the government has exceeded this figure. In addition, many
incentives were offered to farmers.
Issue: The current
government’s bias against the industrial sector is obvious and today the
PPP-led government has the last chance to woo back its urban voters.
Budget is supposedly a gender-neutral document because the
government does not discriminate between men and women while allocating
resources or generating revenue. However, considering that the women lag
behind men in almost areas, there is a dire need to allocate special
funds for them to bring them on a par with men.
Issue: More budget
allocations aimed at bridging the gap between women and men are needed.
G ender budgets, which some of the ministries are already trying to
introduce, should be the name of the game in future.
The government is often taken to task for inefficient management
of the economy, but the real point is missed somewhere. A budget is not a
scripture that cannot be changed; governments all over the world revise
budgetary estimates throughout the year to cater to unseen challenges.
For example, the floods last year necessitated a genuine revision of
budgetary figures in Pakistan. However, a government has no
justification to share incorrect revised estimates at the time of
presentation of the next financial year’s budget.
It is important
to remember that in Pakistan the financial year starts on July 1 and
ends on June 30. As the federal budget for the next financial year is
usually announced in the first week of June, it is impossible for the
government to predict the exact budgetary figures of the outgoing
financial year, because the latter is still not over. However, the
revised budgetary estimates shared just one month before the end of a
financial year should ideally not miss the target by much, as has been
the case in Pakistan for the last few years.
There has been an
increasing trend to project the revised budgetary figures of the
outgoing fiscal year, included in the next financial year’s budget
document, in a manner that they hide the government‘s inefficiency,
which becomes evident only after the actual budgetary figures are
released by the Finance Division in end August. As the focus of
attention has drifted from the budget by then, the government does not
have to face criticism from opposition parties, civil society or the
media.
Comparisons make up the most of budget documents, though
they are used in Pakistan to highlight ‘achievements’ only. To make
these comparisons look good, the government does not hesitate to hide
the reality where it is possible. For example, it always underestimates
the expenditure, especially current, and overestimates the revenue in
the revised estimates. This helps the government to show that not only
its projections for the next financial year are realistic, but also its
performance in the outgoing year had not been that bad. These budget
discrepancies (for want of a better term) have resulted in an ongoing
process where the government is forced to resort to the same practice
year after year, bridging its budget deficit through bank borrowings,
resulting in an increased burden on the economy and the masses in the
form of interest paid.
In the revised estimates of the federal
budget 2010-11, current expenditure was estimated at Rs2,296 billion,
while the original estimate was Rs1,998 billion. With ‘fiscal
discipline’ in mind, current expenditure in the federal budget 2011-12
was projected at Rs2,315 billion. This was being either overambitious or
too simplistic because of the increasing inflation. However, the best
is yet to come: according to the actual figures of the federal budget
2010-11, current expenditure reached an astounding Rs2,901 billion. Now,
Rs605 billion is no mean sum, especially if we consider the fact that
the revised estimates are prepared just one month before the end of a
financial year.
The variation with the original estimates comes to
an even more astounding Rs903 billion. Seen in this light, the estimate
of Rs2,315 billion for the outgoing budget was all the more laughable.
How could we be able to spend Rs586 billion less than we did last year?
It is important to remember here that while the development expenditure
can be reduced, by not initiating new schemes or stopping work on the
ongoing ones, as we are currently experiencing, it is almost impossible
to reduce current expenditure substantially, unless we agree to close
down schools or hospitals, or lay off people working in the public
sector.
A US drone strike targeting a vehicle killed at least three persons Monday in Mir Ali, security officials said.
