The fifth and final budget of the current government was presented on June 1, 2012, envisioning a decrease in the budget deficit from 8.5 percent of the GDP in the previous year to 4.7 percent in 2012-13. To achieve the target, the Federal Board of Revenue (FBR) is set to collect Rs2381 billion taxes against last year’s target of Rs1952 billion. Some other key targets in the budget include the sale of 3G licenses amounting to Rs79 billion under non-tax revenue, power sector subsidy to Wapda/Pepco amounting to Rs135 billion and Rs121 billion under external receipts.
Many commentators including myself found the Budget 2012-13 as a non-serious document, prepared in a casual manger with fragile numbers. Given the state of the economy and prevailing ground realities, the abovementioned targets did not make any sense. It was abundantly clear from day one that the budget-makers were non-serious, did no homework, and simply tried to put together irrelevant numbers in absolute hurry. As such, it was clear that Budget 2012-13 would die a natural death within a few months of being made public. The critics were absolutely correct. The ministry of finance’s (MOF) officials have announced the death of Budget 2012-13. This is nothing but disgusting and speaks volume about the leadership in the ministry.
How non-serious the budget-makers were can be seen from the following facts. Firstly, the FBR is targeted to collect Rs2381 billion in the current fiscal year (2012-13) from an imaginary tax collection of Rs1952 billion last year. Instead of Rs1952 billion, the FBR collected Rs1881 billion in 2011-12 – a shortfall of Rs71 billion. It is tempting to ask why the budget-makers failed to take this slippage into account while fixing the target for 2012-13? My calculation suggests that the FBR is not likely to collect beyond Rs2150 billion in 2012-13, thus leading to a shortfall of Rs231 billion.
Secondly, the MOF expects to receive Rs79 billion under non-tax revenue through the sale of 3G licenses. The sale proceeds of the 3G licenses have been part of non-tax revenue in the previous two budgets as well. Should we expect the government to sell these licenses in a transparent manner in the last few months of its tenure? The answer appears to be in negative. Thus, the shortfalls in the FBR revenue and non-tax revenue amount to Rs310 billion.
Thirdly, on the expenditure side, the government has targeted providing power subsidy to Wapda/Pepco to the extent of Rs135 billion in Budget 2012-13. The government had targeted Rs123 billion in last year’s budget but ended up paying Rs419 billion – an overspending of Rs296 billion. Why should we expect no overspending this year, particularly when the election is around the corner and oil prices are rising? The government has already paid a power subsidy of about Rs60 billion in just two months. An overspending of at least Rs300 billion therefore cannot be ruled out.
Fourthly, inflows under external receipts have been put in the Budget 2012-13 in a very non-serious and casual manner. For example, the budget-makers have put Rs46.5 billion under the heading of Eurobond and Rs74.4 billion under the receipts from Etisalat. Inflows from these two sources have found their place in every budget over the last five years without any success. The budget designers know very well that these inflows will not be realised even this year and yet have added them in the budget as a routine matter. Therefore, external flows worth Rs121 billion are not likely to be available to finance fiscal deficit.
With total slippages under the above listed items amounting Rs731 billion or 3.1 percent of the GDP, the current year deficit is expected to be 8.0 percent of the GDP. Besides these slippages, there are additional risks in the budget. For example on external receipts, a sum of Rs41.5 billion is targeted to come under programme loans. Last year the government targeted receiving Rs118 billion but could receive only Rs4.5 billion. Should we expect such inflows to jump almost tenfold in 2012-13? Similarly, the budget-makers expect to receive Rs46.5 billion from the Islamic Development Bank. Last year, the government expected Rs44 billion but could receive only Rs6.2 billion. Should we expect this amount to be realised?
More risks would emanate from the provinces. This is an election year and like the federal government, the provinces are likely to break all records of fiscal profligacy. Expecting provincial governments to behave in a fiscally responsible manner in the last few months of their tenure, when they refused to do so in the last four years, is tantamount to living in a fool’s paradise.
Based on the above facts it is safe to argue that budget deficit in the current year may reach a level not seen before in Pakistan with severe macroeconomic consequences. In fact, sources close to the IMF fear that the latest “in-house” calculation suggests that budget deficit could swell to 11 percent of the GDP in 2012-13. This is a horrendous development in the making. In such eventuality, Pakistan may face a Greek-like debt crisis. Greece is being salvaged by the European Union and the IMF. Who will devise a rescue for Pakistan?
The IMF and the Pakistani authorities will be meeting in Dubai and Islamabad this week to review the budgetary developments under the post-programme monitoring. The IMF officials, if they are honest to their profession, must reveal the truth to the people of Pakistan about the true fiscal deficit and its consequences for the economy without hiding behind conceptual niceties.
I am confident that the IMF will take notice of fiscal profligacy of last year and help the people of Pakistan and its economy by stopping reckless spenders to break all records of fiscal indiscipline. If they don’t, the people of Pakistan would consider the IMF as “partner in crime”.
The writer is principal and dean of NUST Business School, Islamabad. Email: ahkhan@nbs. edu.pk