The writer is assistant secretary general of the PML-N and a member of the PML-N's Economic Advisory Council.
In the federal cabinet of the current government, everyone seems busy doing someone else’s job – and no one is doing it well.
This has been a hallmark of the consistently failing PTI governance experiment. In keeping with this tradition, the minister for industries and production presented the PTI government’s second annual budget in the National Assembly on June 12.
It has been an eventful twelve months for the minister. Presenting a budget that he didn’t prepare by reading out a speech he probably had little say in has perhaps been one of the very few constants in his political career since June last year. During the intervening period between both budget speeches, his cabinet portfolio has changed three times – including a one-day stint as the federal minister for revenue. The reasons behind each of those three changes aptly capture the tragicomedy that is the current government but that’s a story for another day. For now, let’s return to the budget.
The first thing that immediately jumps out of the budget documents is how unrealistic the FBR tax target for the upcoming fiscal year (FY 2021) is. The government has set a target of Rs4.96 trillion for FY 2021, which would be a one trillion rupee or 27 percent increase from the Rs3.91 trillion the government expects to collect this year (FY 2020).
Given the weak GDP growth prospects and the government’s spectacular failure over the last two years to achieve any tax revenue increase, it is impossible to see how the government expects to achieve 27 percent growth in tax revenues this year. The World Bank is projecting another year of GDP contraction next year for Pakistan with a negative GDP growth rate of -0.2 percent. But even if one accepts the government’s optimistic 2.1 percent GDP growth forecast on face value, the tax target seems very far-fetched.
The PTI government’s tax collection track-record over the last two years isn’t confidence-inspiring either. In FY 2019, not only did the government only collect Rs3.8 trillion compared to a target of Rs4.4 trillion, it was also the first time ever that FBR revenues were lower than the previous year. In FY 2020, the government has missed the target of Rs5.5 trillion by a colossal Rs1.6 trillion, according to its own estimates.
Even the finance adviser, the man responsible for the budget, doesn’t sound confident about the government’s tax target for next year. In the post-budget press conference, he said that the target is an aspiration and admitted that he couldn’t say with much confidence whether it can be achieved. He also tried to absolve himself of any potential consequences for provincial finances by saying that it is up to the provinces whether they want to rely on the federal government’s tax target or not.
In addition to the uncertainty it creates for provincial governments, an unrealistic tax target has two other major implications. One, there is a major risk that the fiscal deficit may once again be significantly worse than the seven percent of GDP the government is budgeting for next year, which will mean more debt and more interest. Two, when this government starts failing to collect taxes at the pace required to meet the unrealistic target, it may attempt to present another budget during the year (or a ‘mini-budget’ as its often described) as a desperate measure.
Even the revised estimates for FY 2020 stated in the budget are questionable. The figure for privatization proceeds is a good example. Revised estimates are supposed to be close approximations of the final figures the government expects for the fiscal year that is about to conclude. The government has provided a revised estimate of Rs150 billion for privatization proceeds in FY 2020. In reality, the Privatisation Commission has not completed a single transaction so far this year, and no completion is expected by June 30. The actual privatisation proceeds for FY 2020 are currently zero.
Inaccuracies in the government’s previous revised estimates don’t inspire much trust either. Last year, on budget day, the government had reported revised estimates of 7.2 percent for fiscal deficit and Rs4.15 trillion for tax revenues for FY 2019. As it later turned out, those revised estimates weren’t close approximations at all.
When the Ministry of Finance released the final figures a couple of months later, the fiscal deficit was 8.9 percent (1.7 percent higher than estimated) and FBR revenues were Rs3.83 trillion (Rs321 billion lower than estimated). That’s one reason why there are concerns that the final figure for the fiscal deficit for FY 2020 may actually be closer to or even higher than 10 percent of GDP rather than the 9.1 percent announced in the budget.
As if there weren’t already enough doubts about the credibility and reliability of the government’s budget and figures, just a few days after the budget presentation the Ministry of Finance quietly withdrew the original version of the ‘Budget-in-Brief’ (a key document in the annual budget pack), and replaced it with a new, significantly revised version on its website.
In the new version, revised estimates for FY 2020 have been removed (from all tables except one), and a couple of figures for FY 2021 have also been changed slightly. Modifications have also been made to the structure of the document, and certain sections, including those relating to the NFC Award and the budget’s salient features, have been removed. Actions like these only further erode trust and confidence in the transparency and professionalism of the government’s budget exercise.
The fact is that the government neither has a real economic plan nor any grip on its figures. That is why, rather than productively using the budget like the major policy instrument it is supposed to be, the government has treated it like an annoying inconvenience. Something the government didn’t know how to do and, therefore, didn’t really want to do. It cobbled something together and presented it only because it was mandatory. Like a student who meets the wordcount requirement and submits an assignment, not because the student has something substantive or coherent to write but because the deadline was looming. Just a box-ticking exercise.
Consequently, this budget does little for an economy desperately in need of implementable economic measures focused on reviving economic activity and creating employment, especially given the bleak and uncertain global economic environment. As things currently stand, we are at a real risk of having to suffer through another year of economic contraction, rising unemployment, rising poverty and fiscal deterioration.
At this stage, one can only hope that our people and our economy find a way to endure through these challenging times despite this government’s incompetence and failures.
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