Finance Minister Ishaq Dar formally presented PML-N government’s fifth growth-oriented ‘development’ federal budget for FY 2017-18 last month. With a total outlay of Rs4.75 trillion, this budget ambitiously foresees a 6% growth rate while setting an Rs4 trillion tax revenue target. At the same time, it also aims at reducing the fiscal deficit to 4.1% of GDP through prudential management and fiscal consolidation. With a 40% increase, the Rs1 trillion PSDP is the most prominent feature of this development-centric budget. This budget is also being called an ‘election budget’ since the Rs2 trillion development funds (Rs1 trillion federal PSDP plus Rs1 trillion provincial ADP’s) will extensively be utilised to win political support before the next General Elections.

As a matter of fact, owing to some reasons, the annual federal budget is gradually losing its significance and relevance as an important tool to analyse country’s fiscal and monetary policies. So the federal budget has more become an annual balance sheet, undesirably prepared and presented by the federal government, merely as a mandatory constitutional requirement. Irrespective of the ‘facts and figures’ stated in the annual budget statement, presently there are a number of macroeconomic factors that not only shape the contours of federal budget but also evolve the economic outlook of the government. In the face of some macroeconomic compulsions, the federal government has to constantly make necessary fiscal readjustments in the form of a number of subsequent ‘supplementary budgets’ and periodical SRO’s, diminishing the utility and significance of the formal budgetary scheme.

The missed revenue targets and unattainable fiscal goals are somewhat the characteristic features of most of the federal budgets presented in the country. While exaggerating its economic performance, the government generally set some ambitious revenue and growth targets in the budget. On the other hand, it modestly predicts the fiscal and current account deficits. While doing so, it artfully prepares a plausible annual balance sheet of government’s expected revenues and intended expenditure in the form of annual budget statement. Essentially being the hallmarks of the “Dar-winian economics” in Pakistan, these sorts of fiscal gimmicks have now become an essential part of the federal budget.

The annual budget statement made by the finance minister in the Parliament has just become a hotchpotch of federal government’s fiscal, monetary and trade policies, micro-level details of its taxation measures and development plans, its past year’s economic performance and a boastful comparison with the last political regime. This practice has given rise to a tradition of delivering a long budget speech by the finance minister, resulting in complicating and rather confusing the entire scheme of the budget. In fact, the unnecessary and irrelevant facts stated in the budget speech essentially obscure the crux of the federal budget- the revenues and expenditure, and the gap between the two i.e. fiscal deficit.

Fiscal deficit is usually the most significant component of any government budget. Surly, the art of preparing a balanced budget includes keeping the fiscal deficit below its optimum threshold. Obviously this threshold varies from country to county. Therefore, each government usually endavours to minimise its fiscal deficit by all means. In Pakistan, there has been observed a tendency of describing the fiscal deficit in terms of the relative volume of country’s GDP instead of the relative size of the budget. This practice hardly portrays the exact picture of this phenomenon. In fact, analysing Pakistan’s fiscal deficit vis-à-vis its GDP volume alone would be quite misleading as it has a very low tax-to-GDP ratio, which ultimately determines its capacity to manage its fiscal deficit as well as accumulated public debt.

The fiscal deficit for the FY 2017-18 has been projected at 4.1% of the GDP. Thus the Rs1.5 trillion fiscal deficit is now equivalent to approximately one-third of the total budget outlay. This is certainly an alarming situation. After meeting the expenditure in three main areas- debt servicing, defence and civil administration, the national kitty will have no funds for Public Sector Development Programme (PSDP), and even for subsidising the loss-making state-owned enterprises (SOE’s). Therefore, in order to make both ends meet, the government will have to opt for deficit-financing- which simply means more public borrowing.

In his budget speech, the Finance Minister readily and repeatedly compared incumbent PML-N government’s economic performance with that of PPP’s last regime in terms of various macro-economic indicators e.g. GDP growth rate, fiscal deficit, FX reserves and growth of tax revenue. Ironically, the worthy Finance Minister didn’t consider it appropriate to mention the rapid surge in the volume of public debt since the PML-N government came into power in 2013. At present, the accumulated public debt, which was just around Rs13 trillion in 2013, has touched the figure of Rs20 trillion. At the end of FY 2017-18, this figure is likely to rise to Rs22 trillion. Thus Pakistan would experience a 70% net increase in the accumulated public debt in just five year. The current volume of Pakistan’s gross public debt has observably surpassed the statutory limit set by Fiscal Responsibility and Debt Limitation Act, 2005. One wonders why the volume of public debt is constantly rising in the presence of oft-claimed positive macro-economic indicators and much-trumped prudential economic management.

In order to overcome its chronic problem of fiscal deficit, Pakistan has to focus on improving its GDP growth rate as well as net revenue collection simultaneously. At present, no sector of the economy is ideally performing its part. The government is relying on the CPEC project and its accompanying investment in the country to improve economic growth. Similarly, the current 10% tax-to-GDP ratio is anything but satisfactory. In the absence of any proactive policy to bring the affluent sections of the society into the tax net, federal government’s endavours to broaden its tax base is primarily revolving around filers and no-fliers of income tax returns. Besides this, the government is imposing more indirect taxes to the disadvantage of the low-income groups.

Each sector of the economy in Pakistan will have to play its due sectoral role efficiently to meet the desired fiscal targets. The government should also focus on the revival of each ailing sector of the economy separately. But obviously, first of all, the energy-deficient country will have to evolve a vibrant energy policy to overcome its chronic energy crisis. Similarly, Pakistan also needs to introduce an effective tax regime, a progressive tax culture and an efficient tax collection mechanism to successfully achieve its revenue targets. Pakistan has to carefully set its long and short term promising but pragmatic fiscal targets to step out of the current vicious cycle. At this stage, a sustainable 7-8% GDP growth rate and upto 15% tax-to-GDP ratio will certainly help overcome the most pressing problem of fiscal deficit in the country. In the long run, it will also ease the cumbersome burden of heavy public debt on our ailing economy.

PML-N government frequently refers to the positive and improved credit ratings accorded to it by the major international rating agencies like Moody’s, S&P, and Fetch. In his recent budget speech, the finance minister also quoted an assessment by Price Waterhouse Coopers, which said, “Pakistan’s economy is set to be among the 20 largest economies (G20) of the world by 2030. However, Pakistan will have to attain the very goal of economic stabilisation before reaching the take-off stage. It would not be able to change its economic fate without improving its economic fundamentals through prudential regulation and strict fiscal discipline. Obviously the all-is-well mantra and statistical gimmickry can by no means help substantially improve the state of Pakistan’s economy.