Institutionalising budget-making

June 24,2019

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The budget debate is going on in parliament these days. We analyze the institutional aspects of budget-making in this article without commenting on the specifics of the presented budget, and refer to some literature (Amjad 2015, Sherani 2017) to illustrate the discussion.

Pakistan is ranked at 140th position in ‘budgetary process and documentation’ in the world according to the Open Budget Index 2014. This index ranks countries in terms of transparency, openness, and inclusion. According to Sherani, “There is a dire need for greater transparency, improved relevance, timeliness, cost-effectiveness and accountability across the entire gamut of budget-making activity.”

It appears from the literature that, though there are well-laid-out processes for budget-making, they are not adhered to in spirit and there is a need to revise the processes of budget-making as well. At the formal level, there are criteria to come up with ‘realistic targets’ in a consistent manner. However, in practice, according to Amjad, “no real attempt to test the authenticity of the targets set or projected, no clear mechanisms in place to gauge how they will be achieved, no serious attempt to monitor progress, and worse, hardly any serious attempts to ensure that the targets set are adhered to or modified after sensible debate and discussion”.

It might be worthwhile to review the institutional processes for budget-making that are in place. Since 2009 onwards, the initial work on budget-making is done through a Budget Strategy Paper under the overall Medium-Term Budgetary Framework (MTBF). This exercise begins about four to five months prior to the budget presentation in the summer. Macroeconomic framework and budget exercise are two parts of it.

Preparation of the macroeconomic framework is led by the Planning Commission and has representation from other economic institutions of the country such as the Ministry of Finance, Federal Bureau of Revenue, Economic Affairs Division, Federal Bureau of Statistics, and the State Bank of Pakistan. Its responsibility is to come up with the key budget indicators such as the targets for growth rate, current accounts and fiscal deficit, expenditure (including the development expenditure) and revenue collection, amongst others.

As stated earlier, there is a need to revise the institutional processes of budget-making. The exercise to prepare the macroeconomic framework has its weaknesses. An important shortcoming is the ‘lack of any meaningful inputs from the provincial governments’. Similarly, the revenue targets are set to balance them out with the targeted expenditure rather than on any meaningful exercise that has intrinsic value based on objective criteria for revenue collection. This is the ‘weakest’ link in the budget-making chain.

When the country is under the IMF programme, macroeconomic targets are set in consultation/under the direction of the IMF. However, it is critical that the national team that prepares the macroeconomic framework is empowered in the real sense. Even if the macroeconomic targets are finally approved under the IMF’s watch, the team working on the macroeconomic framework must come up with its own indicators and they should form the basis of any negotiation with the IMF, rather than the other way round. The Planning Commission must be involved in these negotiations, which are led by the Ministry of Finance currently.

Once the macroeconomic framework lays down the targets, they should be discussed with the concerned economists including the prime minister’s advisory team. In the next step, the Annual Plan Coordination Committee should discuss them. The National Economic Council (NEC) must finally approve this whole exercise. Currently, this process is not meaningfully followed in spirit. Provincial governments only show interest in the budgets for their ongoing projects, rather than being the part of the whole exercise. The debate on the budget in parliament hardly takes into account the larger macroeconomic framework and its targets. There is a need to improve the institutional processes of budget-making.

In terms of the management of expenditures, governments in routine come up with the ‘supplementary expenditures’ and present them to parliament for ex post approval at the end of the financial year. These expenditures, on top of the earlier approved expenditures, are approximately 15-20 percent of the earlier approved budget. Rather than accommodating these ad-hoc ‘supplementary expenditures’ every year, these should be made part of the budget-making projections by doing away with the option of ex ante approval for the sitting governments.

In terms of the other recommendations, the Medium Term Budgetary Framework (MTBF) exercise both needs to have a wider scope and needs to be reinforced in implementation as well. Parliamentary oversight of the budget-making process also needs to be strengthened. Article 77 of the constitution gives the final authority to parliament to levy taxes. Yet, the Ministry of Finance keeps on announcing new taxes, duties, levies and surcharges without taking parliament on board.

Overall, there is both the need to fully implement the given institutional mechanisms for budget-making, as well as to revise those procedures where there are shortcomings, to make the whole exercise meaningful and effective from the point of view of citizens’ interests.

The writer is an Islamabad-based socialscientist.


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