As Finance Minister Ishaq Dar presents the Federal Budget 2017-18 today, probably the last of the incumbent PML-N government, it is high time to make an attempt at discovering the story hidden behind the numbers.

The idea is to enable the reader to: 1) understand the main issues at play in the budget; 2) comprehend the fierce competition between different sectors; 3) read between the lines to understand the jugglery of figures; 4) evaluate government’s revenue and expenditure priorities for different sectors; and 5) do a basic level analysis of the budget.

1. Resources Vs Expenditure

Resources mean how much and in what way the government will gather money in a financial year (July 1-June 30); while expenditure means how much money the government will spend, and on what.

In the outgoing budget (2016-17), the total resources (internal and external) were estimated at Rs4,442 billion; while the total expenditure (current and development) at Rs4,895 billion, implying a budget deficit of Rs453 billion. The deficit is mainly covered through bank borrowings.

Issue: Overestimation of resources and underestimation of expenditure.

2. Current Vs Development expenditure

Current or recurring expenditure includes government spending on salaries, rentals, office requirements, operating expenses of public-sector industries and services and payment of interest on loans; while development expenditure includes 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 Rs3,844 billion; while the current expenditure at Rs1,051 billion.

Issue: Overestimation of development expenditure and underestimation of current expenditure.

3. Direct Vs Indirect taxes

Direct taxes (mainly income tax) are paid directly to the government and their major objective is income redistribution in the society since 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, mostly the seller of a good, which then passes them onto the government.

In the outgoing budget, direct taxes was estimated at Rs1,558 billion; while indirect taxes at Rs2,063 billion.

Issue: Overestimation of direct taxes that affect only the well-off and underestimation of indirect taxes that affect all citizens across the board.

4. Domestic Vs Foreign debt servicing

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 by the government from external sources such as the World Bank, IMF, etc.

In the outgoing budget, domestic debt servicing was estimated at Rs1,247 billion; while foreign debt servicing at Rs113 billion (and foreign loan repayment at Rs444 billion).

Issue: Against common perception, Pakistan’s major problem is domestic debt, not foreign debt, since the interest on the former is generally many times higher than on the latter.

5. Tertiary Vs Primary education

Tertiary education refers to public sector universities and colleges; while primary education to public sector primary schools.

In the outgoing budget, the current expenditure on tertiary education was estimated at Rs66 billion; while on primary education at Rs8 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.

6. Industrial Vs Agriculture sector

Budget-making is a process of opting for some of the available priorities at the cost of others. Traditionally, the PPP favours the agriculture sector (or people living in rural areas), while the PML-N and dictatorial regimes favour the industrial sector (or people living in urban areas).

In the outgoing budget, subsidies were estimated at Rs141 billion, of which as much as Rs118 billion were electricity related to help the industrial sector, while meagre support was provided to the agriculture sector.

Issue: The PML-N government’s bias against the agriculture sector is obvious and today it has probably the last chance to woo back its rural voters.

7. Mega Vs Micro projects

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.

Undue budget revision

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 could not be changed, but a government has no justification to share incorrect revised estimates.

In Pakistan, 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 in mid-August. As the focus of attention has drifted from the budget by then, the government does not have to face much criticism from any quarter. What is hidden in June is thus quietly revealed in August.

False estimation

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 wherever 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 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.

The writer is a guest writer.

 

MUSTAFA NAZIR AHMAD