LAHORE - Before the presentation of the Federal Budget 2012-13 in the National Assembly on June 1, the general expectation was that it would offer many incentives to the poor. This optimism was based on the assumption that this being the election year, the ruling Pakistan People’s Party would leave no stone unturned to demonstrate to the masses that it was sincere to the cause of their uplift.

In keeping with this, the government has moved beyond rhetoric to allocate record funds to the Public Sector Development Programme (PSDP) in the forthcoming budget. Moreover, salaries and pensions of government employees have been increased, incentives have been announced for the agricultural and construction sectors, hardly any new taxes have been imposed, and subsidies have not been withdrawn as the government was being pressurised to do by the international financial institutions (IFIs).

Budget-making is indeed a difficult task, more so in a country like Pakistan with so many pressing priorities competing for scarce resources. This political dimension of the budget formulation process is mostly ignored in favour of its technical dimension, thereby thwarting any genuine attempt at budget analysis. The most important question is not how much resources have been allocated to a certain sector, but which areas have been given priority over others and for what reasons.

Pakistan’s Federal Budget 2012-13 is no exception, failing to offer an insight into the rationale behind allocation of resources. Even otherwise, the budget is silent on so many questions of vital concern that a lot of imagination is needed to make sense out of it. First and foremost, from where are all the resources forthcoming to justify huge increase in the PSDP?

The budget framers, with all their sincerity of intent, have not identified the sources of the additional resources to be generated. Thus, it is obvious that ultimately the poor would have to bear the brunt of the increase in PSDP allocation – in line with the ‘reforms’ introduced through the Medium-Term Budgetary Framework (MTBF) that set its target for this fiscal year at 4.4% of GDP – in the form of indirect taxes. Is it not an irony that the increased PSDP allocation is actually supposed to benefit the very poor who would be burdened through additional taxes?

The total outlay of the Federal Budget 2012-13 is estimated at around Rs2.960 trillion, implying that the government proposes to spend approximately Rs16,000 per person annually or Rs43.84 per person daily. This shows a marginal increase over the outgoing fiscal year, in which the government plans to spend Rs15,372 per person annually or Rs42.11 per person daily. Current expenditure, estimated at Rs2.612 trillion, raises the first doubt about the government’s planning capacity. In the outgoing fiscal year, current expenditure was originally estimated at Rs2.315 trillion, but it was increased to Rs2.632 trillion in the revised estimates.

Many important questions arise here: is the government trying to say that, in the forthcoming fiscal year, it would be able to spend Rs20 billion less than the outgoing fiscal year under the head of current expenditure? Is the government planning to lay off its employees and close down public schools and hospitals? How else it would be able to spend Rs20 billion less next year than this year, considering that: i) inflation is high; ii) elections are just round the corner; iii) salaries and pensions have been increased; and iv) fiscal deficit of over Rs1.1 trillion (bound to increase by a few hundred billion by next budget) would eat up a lion’s share of current expenditure in the form of domestic and foreign debt servicing?

The best is yet to come! How can one justify such an underestimation of current expenditure when our government had spent Rs2.154 trillion under the head of current expenditure in only the first nine months of fiscal year 2011-12, and traditionally both current and development expenditures pick up pace in the last quarter of the fiscal year? Isn’t it stupid to assume that current expenditure in the last quarter of the fiscal year would be just Rs478 billion (Rs159 billion a month), when Rs657 billion, Rs742 billion and Rs755 billion had been spent in the first, second and third quarters of the fiscal year, respectively.

Even going by the current rate, the government would end up spending at least Rs2.872 trillion under the head of current expenditure in the outgoing fiscal year. In all probability, the actual figure would exceed Rs3.3 trillion as the scribe would try to establish through examples from the past three budgets. In short, the revised estimate of current expenditure – Rs2.632 trillion – reflects a dismal lack of economic prudence, being off target by at least Rs700 billion with just a month left in the fiscal year’s end. Evidently, to meet the shortfall in the outgoing year’s budget, the government would have to impose more taxes or resort to bank borrowings, both of which do not augur well for the economy and people.

In Federal Budget 2008-09, current expenditure was estimated at Rs1.493 trillion; increased to Rs1.649 trillion in the revised estimates; and the target for Federal Budget 2009-10 was set at Rs1.699 trillion. But the actual budgetary figures showed that the government ended up spending Rs2.042 trillion under the head of current expenditure in fiscal year 2008-09, implying that it spent Rs393 billion more than the revised estimates for the year and Rs343 billion more than the estimates for the next year.

The best again is that the government did this planning despite knowing that Rs1.416 trillion had been spent under the head of current expenditure in the first nine months of the fiscal year. It simply defies logic to assume that current expenditure in the last quarter of the fiscal year would be just Rs233 billion (Rs78 billion a month), when Rs456 billion, Rs463 billion and Rs497 billion had been spent in the first, second and third quarters of the fiscal year, respectively. As it turned out, the government actually spent Rs626 billion under the head of current expenditure in the last quarter of fiscal year 2008-09, while it had planned for just Rs233 billion.

In Federal Budget 2009-10, current expenditure was estimated at Rs1.699 trillion; increased to Rs2.017 trillion in the revised estimates; and the target for Federal Budget 2010-11 was set at Rs1.998 trillion. But the actual budgetary figures showed that the government ended up spending Rs2.386 trillion under the head of current expenditure in fiscal year 2009-10, implying that it spent Rs369 billion more than the revised estimates for the year and Rs388 billion more than the estimates for the next year.

The best again is that the government did this planning despite knowing that Rs1.660 trillion had been spent under the head of current expenditure in the first nine months of the fiscal year. It is strange that our economic managers thought that current expenditure in the last quarter of the fiscal year would be just Rs357 billion (Rs119 billion a month), when Rs521 billion, Rs538 billion and Rs601 billion had been spent in the first, second and third quarters of the fiscal year, respectively. As it turned out, the government actually spent Rs726 billion under the head of current expenditure in the last quarter of fiscal year 2008-09, while it had planned for just Rs357 billion.

In Federal Budget 2010-11, current expenditure was estimated at Rs1.998 trillion; increased to Rs2.296 trillion in the revised estimates; and the target for Federal Budget 2011-12 was set at Rs2.315 trillion. But the actual budgetary figures showed that the government ended up spending Rs2.901 trillion under the head of current expenditure in fiscal year 2010-11, implying that it spent Rs605 billion more than the revised estimates for the year and Rs586 billion more than the estimates for the next year.

The best again is that the government did this planning despite knowing that Rs1.910 trillion had been spent under the head of current expenditure in the first nine months of the fiscal year. One wonders what made the government believe that current expenditure in the last quarter of the fiscal year would be just Rs386 billion (Rs129 billion a month), when Rs567 billion, Rs660 billion and Rs683 billion had been spent in the first, second and third quarters of the fiscal year, respectively. As it turned out, the government actually spent Rs991 billion under the head of current expenditure in the last quarter of fiscal year 2009-10, while it had planned for just Rs386 billion.

Another classic case of underestimation in the Federal Budget 2012-13 is that of subsidies, which have apparently been increased by Rs43 billion over the estimates of the outgoing year (from Rs166 billion to Rs209 billion); however, the revised estimate of subsidies is Rs512 billion and, for all practical purposes, it implies that the PPP-led government has allocated Rs303 billion less to subsidies in the next fiscal, which also happens to be the election year. Seems impractical to say the least!

On the other hand, the PSDP has been increased by Rs140 billion, from Rs730 billion (federal component: Rs300 billion; provincial component: Rs430 billion) in the outgoing budget to Rs873 billion (federal component: Rs360 billion; provincial component: Rs513 billion) in the Federal Budget 2012-13. The government even increased the revised estimate of the PSDP by about Rs4 billion (to Rs734 billion) to show that it is on track of spending the full development budget for the first time in many years. However, one would be well advised not to accept these figures at the face value. Why? Because the PSDP utilisation in the first nine months of the ongoing fiscal year is Rs201 billion and Rs175 billion for the federal and provincial components, respectively.

So, in effect, the federal government is expecting to spend Rs103 billion in the last quarter of the fiscal year when it had spent Rs47 billion, Rs70 billion and Rs84 billion in the first, second and third quarters, respectively. This seems an achievable target, especially considering that elections are around the corner and development expenditure traditionally picks up pace in the last quarter of the fiscal year. But, on the other hand, the provincial governments are supposed to spend Rs255 billion in the last quarter of the fiscal year while they had spent only Rs32 billion, Rs57 billion and Rs86 billion in the first, second and third quarters, respectively. Seems pretty impossible! More important, the provincial component of the PSDP has been increased by Rs83 billion in the next budget against all established budgeting principles.

One wonders if the government could not utilise the full allocation of Rs430 billion under this head in the outgoing fiscal year, how it would possibly spend Rs513 billion in fiscal year 2012-13. Moreover, the additional money spent on the people’s ‘development’ in the last few years has so far not shown any tangible results as claimed by the government. In this perspective, the government needs to lay emphasis on quality, not quantity. What is required is efficient utilisation of the allocated resources and quality service-delivery for the downtrodden, not a mere increase in numbers.

The same can be said about the subsidies announced in the Federal Budget 2012-13, because it seems highly improbable that they would actually benefit those for whom they are intended. What Pakistan needs is adequate and well-functioning safety nets for the poor, like those in place in other countries of the region, and not one-off incentives.

To sum up, next year’s budget targets can at best be described as pie in the sky. Very soon, the shortfall in revenue would force the government to resort to anti-people measures such as overburdening taxation. Even if the government meets the revenue shortfall through bank borrowings, the people would suffer as they would have to pay the interest on the borrowed money in the years to come. Most importantly, the financial stability and discipline the government’s financial wizards are so fond of bragging about have been abandoned in order to present a so-called ‘people-friendly’ budget.

(To be concluded)

A pie in the sky