Where’s the change?

June 20,2019

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Even after seven decades of existence, Pakistan stands as a nascent and fragile democracy. Autonomous institutions, a transparent and meritocratic accountability system, efficient governance mechanisms, a sovereign parliament, rationalized public spending driven by socioeconomic need, equitable taxation systems and many other democratic milestones are yet to be achieved by this nascent democracy. The recipe for progress is unimpeded cycles of autonomous democratic tenures run by competent and elected individuals. It is rather grueling to explain this gradual democratic headway [when allowed] as a solution to the common man who remains perturbed by the widening income expenditure gap and society’s soaring social inequality.

The PTI’s political spell challenged this mode of Pakistan’s progression, making the people believe that they had a radical and abrupt solution centered around social equality, good governance and accountability reforms. But since the PTI has assumed power, it has begun to appear that the mantra being branded as a peculiar solution during the 2018 general elections and which lured the public to follow the tabdeeli tune was similar to the people of Hamelin following Pied Piper. I often iterate a quote from an interview of a former UN secretary-general with The Washington Post: “The developing world is an easy target for populists”.

The PTI’s core agenda revolves around establishing and creating social justice in the country and it claims mandate over the said notion. Looking at this government's first full-year budget, it is difficult to spot its reflection in in the budget. The budget continues to be prepared traditionally under the Medium-Term Budgetary Framework (MTBF) approach where no nexus exists between funds’ allocation and socioeconomic need.

From the budgetary estimates, it is understandable that once the provincial share from federal taxes is taken away, the central exchequer will be left with Rs3,712 billion of net receipts which merely makes up 44 percent of the mammoth Rs8,422 billion budgeted expenditures – hence warranting an even more prudent approach. So can the government elaborate – in parliament and to the public – the socioeconomic rationale behind the expenditures largely funded by debt? The question is critical to answer because the ruling party brands itself as an antithesis to the status quo.

The primary agenda of the 2018 PTI manifesto vowed to ‘transform governance’ and ‘bring accountability to the core of the government’. In the outgoing fiscal year 2018-19, a massive Rs495 billion shortfall in total revenues was recorded where targets were missed on all budgeted revenue heads except customs duty and FED. Yet, without a reform plan, the government has set an ambitious revenue target of a 32 percent year-on-year increase when the actual collection in the outgoing fiscal year is 10 percent less than the actual budget targets.

In FY 2018-19, budgeted expenditures witnessed a Rs449 billion surge despite the adoption of austerity measures by the government. But austerity in tandem with poor fiscal management seems to have cost the country its developmental progress largely, where the Public Sector Development Programme (PSDP) saw a 32 percent decrease during the outgoing fiscal year, and ‘General Public Services’ expenditure registered a 21 percent increase in the backdrop of increase in debt servicing, driven by abrupt borrowing and a devalued rupee. Expenditure on ‘Economic Affairs’ witnessed a 75 percent increase than budgeted while ‘recreation, culture and religion’ expenditures saw an increase of 14 percent during the year.

Is this an indication of ill-planned austerity, poor fiscal management and weaker oversight and control over expenditures or are previous regimes to be blamed for this? The treasury benches need to explain these arbitrary trends in spending and collection trends in light of the promises made under the banner of tabdeeli.

The inability to meet targets as well as capacity constraints in the FBR adversely impacted revenue collection and weak oversight and monitoring mechanism of public expenditures by the AGP Office has led to a hike in budgeted expenditures. Cumulatively, the impact of missed revenue targets and inflated expenditures have resulted in a 27 percent increase in fiscal deficit in 2018-19.

In tandem with its first fiscal policy, this should have been reflected via reforms for the AGP Office, FBR and the public-sector setup at large. It is crucial for the government to answer how its first fiscal policy, without the much-trumpeted reform plan for the executing institutions, results in ‘accountability at the core of the government’? It is rather unfortunate to witness the accountability debate in the country centered around the opposition parties and previous regimes while reforms needed for true accountability continue to be brushed under the carpet.

When in opposition, former finance minister Asad Umar was one of the most vocal voices in parliament against the growing incidence of indirect taxation over the past decade and its socioeconomic impact. In its first budget, the government plans to raise 64.3 percent of revenues via indirect taxes in comparison with 62.3 percent in the revised budgeted estimates for 2018-19, a 2 percent increase from the previous year. The resulting impact coupled with the growing inflation and the change in income tax structure will impact the middle and lower classes even more adversely than in the past.

Given its claims to be trusted by the public as an agent of change, the government needs to consider how it plans to administer the rest of its tenure because circumstances explicitly beg a critical question: where is the change?

The writer is a chartered accountant. Email: shahzadtahirkgmail.com

Twitter: Shahzad_91


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