Facing the budget blues

The announcement of budgetary figures for financial year 2016-17 has once again exposed the economic claims of the ruling PML-N government. As predicted by this scribe on these pages on May 25 (‘Budget 2017-18: pie in the sky)’, all the false pretensions of an economic turnaround have been worn threadbare by the figures that speak for themselves, offering a glimpse into what lies in store for the nation.

The government estimated on May 26, when the budget for the ongoing fiscal (FY18) was presented in the National Assembly, that the country’s total expenditure in FY17 (ending on June 30 or just 35 days later) would be Rs4,841 billion, or Rs4 billion less than the original estimate of Rs4,845 billion. Based on this revised estimate, the expenditure for FY18 was estimated at Rs5,104 billion in what apparently seemed to be a stroke of rare genius.

Unfortunately, however, the economic wizards chose to ignore that the country’s expenditure in the first nine months of FY17 (June 2016-March 2017) stood at Rs4,384 billion. In other words, they estimated that the country’s expenditure in the last quarter of the fiscal year – when it traditionally picks up – would be only Rs457 billion or Rs152 billion a month, against an average of Rs487 billion a month in the preceding nine months. One wonders why the expenditure was reduced by Rs4 billion in the revised estimates if this was the case!

The figures now posted on the Ministry of Finance’s website tell us in unambiguous terms that the actual expenditure in FY17 was Rs6,801 billion, or Rs1,960 billion more than what the best brains of the country had estimated just 35 days back. These figures unequivocally tell us two things: (a) in FY18, the government estimates to spend Rs1,697 billion less than it did in FY17; and (b) the budget deficit for FY17 stood at a staggering Rs1,864 billion or 5.8 percent of the country’s GDP.

A budget – though admittedly the most important economic document for a country – is not a scripture that cannot be changed. Governments all over the world revise budgetary estimates throughout the year to cater to unseen challenges. For example, floods or a large-scale earthquake or other natural disasters may necessitate a genuine revision of budgetary figures in Pakistan. A government, however, has no justification to intentionally share incorrect revised estimates at the time of presentation of the next fiscal year’s budget.

Pakistan’s financial year starts on July 1 and ends on June 30. As the budget for the next fiscal year is usually announced in the last week of May or first week of June, the government cannot possibly predict the exact budgetary figures of the ongoing fiscal year. However, the revised budgetary estimates shared just four to five weeks before the end of a fiscal year should ideally not miss the target by much, as has been the case in Pakistan since the turn of this century; another gift to the nation by Shaukat Aziz.

There has been an increasing trend to project the revised estimates of the ongoing fiscal year, included in the next fiscal 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 the last week of August or the first week of September. As the focus of attention has drifted from the budget by then, the government normally does not have to face much criticism from the opposition, civil society or the media.

These budgetary ‘discrepancies’ (for want of a better term) have resulted in a situation whereby the government is forced to resort to the same practice year after year, bridging its budget deficit through foreign and domestic financing, leading to an increased burden on the economy and the masses in the form of debt servicing.

A detailed analysis of budgetary figures for FY17 further tells us that, as has been the norm since the Musharraf era, the estimates of current expenditure were way off the mark. The revised estimate of current expenditure for FY17 was Rs3,905 billion, while its original estimate was Rs3,844 billion. With ‘fiscal discipline’ in mind, the current expenditure for FY18 was estimated at Rs3,764 billion.

According to the actual budgetary figures for FY17, the current expenditure reached an astounding Rs5,198 billion. Now, Rs1,293 billion is no mean sum, especially considering that the revised estimates were prepared just 35 days before the end of the previous fiscal year. The variation with the original estimates comes to an even more astounding Rs1,354 billion. Seen in this light, the estimate of Rs3,196 billion for FY18 becomes all the more laughable.

How will the government be able to spend Rs1,434 billion less than it did in the previous year under the head of current expenditure? While development expenditure can be reduced, by not initiating new schemes or stopping work on the ongoing ones, reducing current expenditure is almost impossible, unless we agree to close down schools or hospitals, or lay off people working in the public sector.

While the expenditure and budget deficit were underestimated, the development expenditure was overestimated, making it obvious that there is a method to this madness. The original estimate of development expenditure for FY17 was Rs1,675 billion (Rs800 billion and Rs875 billion for the federal and provincial components, respectively), but the actual budgetary figures show that the government could manage to spend only Rs1,578 billion (Rs726 billion and Rs852 billion for the federal and provincial components, respectively) under this head. Against this backdrop, the target of Rs2,113 billion (Rs1,001 billion and Rs1,112 billion for the federal and provincial components, respectively) for FY18 seems all the more unattainable.

One can say with certainty that the government will not be able to spare this amount for pro-people purposes, considering that it spent about Rs100 billion less than what it had earmarked for development in the previous fiscal. This is also a reminder to those civil society activists who campaign for an increase in the budget for education and other development sectors. Probably we need campaigns aimed at forcing the government to use the full allocation for the development sector.

Interestingly, the defence budget was reduced from Rs860 billion to Rs841 billion in the revised estimates for FY17. However, the actual budgetary figures show that Rs888 billion were spent under this head. Considering this, the estimate of Rs920 billion for FY18 seems all the more unreasonable. In conclusion, one can say that FY18’s targets are impossible to meet even if the government tries it best and we are all set for a record budget deficit to the tune of Rs2.5 trillion.

The writer works as senior programme manager with the Centre for Peace and Development Initiatives.

Email: mustafa@cpdi-pakistan.org