Budget 2017-18: pie in the sky

Before we start any discussion on Budget 2017-18, to be presented in the National Assembly on May 26, it would not be out of place to see how the country has fared during the previous years on this count.

This is particularly important because subsequent to Shaukat Aziz’ first budget (2000-01) as Pakistan’s finance minister, all governments have conveniently hoodwinked the masses at the time of budget presentation by deflating the expenditure and budget deficit with a view to presenting a rosy picture of the economy.

These governments have been helped by the fact that the budget year starts on July 1, while the budget is normally presented in the National Assembly in the first week of June. The budget for the next financial year is prepared in line with the revised estimates of resources and expenditure for the ongoing financial year, based on the economy’s performance during the first eleven or so months. The budget documents present estimates and revised estimates of resources and expenditure for the ongoing financial year along with the estimates of resources and expenditure for the next financial year, so as to offer a comparative analysis.

Regardless of the party at the helm of affairs, each government has – since the turn of the century – presented fudged figures for the ongoing financial year, so that in comparison the estimates for the next financial year appear plausible and, more important, achievable. However, each time the dismal picture of the economy became obvious when the Ministry of Finance released the actual budgetary figures for the previous financial year in August. No wonder, neither the opposition nor the media paid attention!

When Budget 2016-17 was presented in the National Assembly on June 3, 2016, the government had estimated the expenditure at Rs4,895 billion, based on the revised estimate of Rs4,479 billion for 2015-16. However, when the actual budgetary figures were released in August 2016, the expenditure had jumped to Rs5,796 billion.

Some questions arise: (a) How could the government’s estimate go wrong by as much as Rs1,317 billion? (b) How will the government manage to curtail the expenditure by as much as Rs901 billion during the ongoing financial year even if the inflation is not taken into account? (c) Is it just an estimate gone wrong or is something sinister at play?

Based on the figures released by the government itself, one is compelled to believe that it is not merely a case of an estimate gone wrong. For example, as per the provisional budgetary figures for the first three quarters of 2015-16 (July 2015-March 2016), the expenditure stood at Rs3,971 billion. This implies that the government ‘estimated’ that only Rs508 billion would be spent during the last quarter (April-June 2016), though the average for the first three quarters was Rs1,324 billion. The government ended up spending Rs1,825 billion during the last quarter.

What did the government gain by making a mockery of economic policymaking? It was able to keep the opposition and media in the dark about the volume of the country’s budget deficit, but it inflicted a heavy blow to the masses during the process. The actual budget deficit in 2015-16, which was estimated to be only Rs199 billion when Budget 2016-17 was presented, stood at an astounding Rs1,349 billion. Once again, no plausible explanation could be offered on behalf of the government.

After the first quarter (July-September 2015), the budget deficit stood at Rs328 billion; after the second (October-December 2015), at Rs515 billion; and after the third (January-March 2016), at Rs1,009 billion. Once again, the government ‘estimated’ that the budget deficit would magically reduce by Rs810 billion in the last quarter. To meet the budget deficit of Rs1,349 billion in 2015-16, the government borrowed from both external and internal sources at heavy interest rates, which all of us are either directly or indirectly paying and are doomed to pay for many years to come.

Based on previous experience, one can safely make two estimates. One, whatever figure the government may release on May 26, the actual expenditure during 2016-17 will be in the range of Rs6.5 trillion. As per the provisional budgetary figures for the first three quarters of 2016-17 (July 2016-March 2017), the expenditure stood at Rs4,384 billion. Considering that the average for the first three quarters was Rs1,461 billion, if the government ‘estimates’ to spend anything less that Rs2.0 trillion during the last quarter (April-June 2017), it would be indulging in figure fudging.

Based on this, the estimate of expenditure for 2017-18 should be close to Rs7.0 trillion. Anything less than this would raise doubts about the government’s sincerity.

Two, the budget deficit in 2016-17 would not be less that Rs.2.0 trillion. As per the provisional budgetary figures for the first three quarters of 2016-17, the budget deficit stood at Rs.1,238 billion. The government may underestimate it by deflating the expenditure during the budget presentation in the National Assembly, but come August and the actual situation of the economy would be laid threadbare like all previous years since 2000-01!

Finally, as said earlier, all governments since the Musharraf era have made use of the ‘innovative’ economic policymaking introduced by Shaukat Aziz, but the incumbent government has pursued it with renewed vigour. Considering that elections are around the corner, one can expect the PML-N government to undertake an even more populist agenda, resulting in nothing but burgeoning budget deficit to be met through more and more bank borrowings at higher interest rates. The poor would disproportionately suffer from the burden of debt servicing, but the real victim would be the political party winning the next general elections – empty coffers would poke fun at its election promises!

The writer is a development
professional specialising in budget analysis and advocacy.

Email: mna7@hotmail.com