Budget and wasteful expenses

Pakistan can never get rid of the mess unless wasteful expenses are drastically cut

It is shocking that while the number of unemployed has increased alarmingly and the poor are suffering from hunger, malnutrition and serious health issues, the non-development and wasteful expenses of the government have increased substantially as shown by budget documents for the fiscal year 2020-21. This is besides overspending beyond the budget allocations while making tall claims about “living within means” and “drastically reducing wasteful expenditure”.

Despite a negative economic growth, rising unemployment, inequalities and challenges on the fiscal front — the rising public debt and its servicing, economic meltdown, external security threats and rising cost of energy, an ever-increasing rise in the prices of items of daily use, surplus funds have been made available to ensure that our rulers live lavishly and enjoy extraordinary perks and benefits.

The Supplementary Demands for Grants and Appropriations for the last many years show more fund allocations for non-productive purposes, sadly also for the comfort and luxuries of the privileged classes enjoying tax-free perquisites and benefits. This extravaganza is hurtful when we are facing, like other nations, the horrendous economic toll of Covid-19 outbreak and complete or partial lockdowns in various parts of the country.

On one hand, extra grants for billions of rupees are approved for overspending during earlier years and on the other regressive taxes are not cut. To add insult to injury, the taxes are spent mainly on running an inefficient and incompetent state machinery.

Pakistan’s ranking on the Human Development Index (HDI) 2019 stood at 152 out of 189 countries — lower than all the regional countries. Nearly 25 million children are out of school in Pakistan in denial of the fundamental right under Article 25-A of the Constitution. The Constitution says, “The State shall provide free and compulsory education to all children of the age of five to sixteen years in such manner as may be determined by law”. According to a report, “the national poverty ratio, which was 31.3 percent in June 2018, had risen to over 40 report by June 30, 2020.

In the face of these painful facts, the National Assembly on June 30, approved Rs 544.824 billion Supplementary Demands for Grants and Appropriations for fiscal year 2019-20 for various divisions and departments amid walkout by the Opposition. Even in the challenging circumstances, the fiscal indiscipline has deteriorated further as the corresponding amount last year was Rs 201.936 billion.

According to official documents, more than half of the additional spending (53 percent) was on account of the Covid-19 outbreak. But out of the Rs 544.8 billion, an amount of Rs 336 billion was spent through regular supplementary grants, which denies the government’s claim that it did not make any new supplementary grants.

The remaining Rs 208.8 billion was spent by making adjustments within the budget — called technical grants. After excluding Covid-19-related spending, the amounts approved through supplementary grants, either by making adjustments within the budget or issuing new cheques, “was the result of either poor planning by the ministries or less budgetary allocations”, the report adds.

It is claimed in the report that “in violation of the rules, the Ministry of Finance provided Rs 101.3 billion supplementary budget to the Federal Board of Revenue (FBR) for encashment of sales tax and income tax refund bonds. However, under the rules, the supplementary budget cannot be more than the original budget, which in case of the FBR was Rs 4.4 billion”. As per details revealed in the budget documents, the regular supplementary grants of Rs 336 billion — increased by 216 percent — got ex-post facto approval from the National Assembly. The National Assembly also approved excess demands for grants and appropriation for the financial years 2009-2010, 2010-2011, 2011- 2012, 2012-2013 and 2013-2014.

During the budget debate, the Opposition members claimed that billions or rupees was given to ministries and related departments but their performance was extremely poor and “bad governance was their hallmark during the tenure of Pakistan Tehreek-i-Insaf (PTI)”.

It was alleged that around Rs 300 billion went into the pockets of three oil companies as a result of poor policies of the PTI government. The opposition said that the International Monetary Fund was given assurance by the PTI government that no supplementary grant would be given “but it still provided supplementary grants”.

What makes the situation more painful is the fact that the rich, including several political leaders, pay paltry amounts in taxes (Tax Directories of Parliamentarians from 2013 to 2018 testify to it) and the FBR and the National Accountability Bureau (NAB) take no action against them under the law.

The Budget in Brief part of the Budget 2020-21 document says the government has revised “over-all budget deficit from 7.1 percent to 9.1 percent of GDP”—an all time high. The excuse that it is due to coronavirus is not plausible as performance of the government in the first nine months of the FY 2019-20, prior to this endemic, too, was highly unsatisfactory. It was missing targets for growth in various sectors and there was a massive revenue shortfall in the FBR. There was high inflation and discount rate plus sluggish economic activities leading to unemployment and rising poverty.

The total expenditure for 2020-21 is estimated at Rs 7.1 trillion against total revenues — tax and non-tax of 3.7 trillion. Current expenditures are Rs 6.3 trillion against development expenditure of Rs 792 billion, out of which allocation for public sector development programme is Rs 650 billion. The comparison between development and non-development allocations tells the real story. After debt servicing [this year the allocation is Rs 2,946 billion against last year’s amount of Rs 2,891 billion], the gigantic government machinery is eating up the revenues.

The massive current [non-developmental] expenses contained in Demands for Grants and Appropriations for Budget 2020-21 include millions for payment of salaries, perks and other facilities. The number of ministries, divisions and departments, etc, is 180. In the case of Cabinet Secretariat, for example, current demand of Rs 277.9 million includes Rs 30,371,812 under the head of Miscellaneous Expenditure of Cabinet Division, Rs 1,160,022 under the head Establishment Division and then Rs 4,280,242 under the head Other Expenditure of Establishment Division.

One can go on the website and see absurd details proving huge wasteful expenses for the remaining governmental institutions and departments. Then there are losses in public sector enterprises and what they call circular debt in the energy sector.

The spending/losses cannot improve the plight of the masses, a majority of whom are deprived of basic amenities of life guaranteed in Article 9 of the Constitution as inviolable fundamental right discussed in detail in the famous case of Ms Shehla Zia v WAPDA [PLD 1994 Supreme Court 693].

Public office holders should read Article 3 of the Constitution which says: “The State shall ensure the elimination of all forms of exploitation and the gradual fulfilment of the fundamental principle, from each according to his ability, to each according to his work”. If this promise is not fulfilled how can the State ensure the obligation imposed under Article 5(1) that “loyalty to the State is the basic duty of every citizen”.

Successive governments have failed to bridge the gap between current expenditure and tax revenue. Pakistan can never get rid of the mess unless wasteful expenses are cut drastically, tax leakage is plugged and untapped resources are utilised by imparting skill-based training to the millions of youth.

The writers, lawyers and authors of many books, are Adjunct Faculty at the Lahore University of Management Sciences (LUMS)

Budget and wasteful expenses