Mustafa Nazir Ahmad
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.