Presently the landscape of our national debate is dominated by different issues of public financial management system and every political party, economic experts and individuals are giving their views tirelessly on performance of various sectors in context of state revenues and expenditure. The budget/fiscal deficit and current account deficit are the major issues that have adversely impacted the development activities and compelled our successive governments to resort to borrow funds both internally and externally to run the affairs of the state.
Recent unprecedented and devastating floods in the country have exacerbated our already precarious economic situation and exposed our economy to new challenges of speedy and transparent relief and rehabilitation activities in the country. The revival and performance of our economy is adversely marred due to our chronic structural economic issues like soaring debt burden, burgeoning inflation, poverty, static or dwindling exports, loss-making State-Owned Enterprises (SOEs), huge cost of running of government, excessive taxation and rising gap between rich and poor. Revenue generation and Public Expenditure Management (PEM) are two distinct streams of public financial management which complement each other in attaining the strategic macroeconomic objectives of the state. Lots of focus and attention is rightly placed on issues of revenue generation, but equally important is the aspect of prudent and effective utilization of national resources that is expenditure side.
Our current situation demands to refocus our national economic priorities along with strengthening of our systems and controls at the level of resource utilization. It is significant to understand how public funds are allocated, how are they spent and what outcome is attained as a result of public expenditure. If the leakages, waste and misuse of public funds remain un-checked and un-noticed then there is a high risk of not only non-attainment of national objectives but it could also result in poor delivery of public services. A resource scarce economy like Pakistan needs to have a robust and efficient Public Expenditure Management (PEM) system to ensure that its financial resources are utilized in the most prudent manner while minimizing the chances of misuse or waste. A rupee saved through prudent public expenditure management is rupee earned for Pakistan. Governments are responsible to provide public goods and services to their citizens and for this they have to incur expenditure in various sectors of the economy.
PEM unlike conventional budgeting focuses on outcomes where expenditure is taken as means to generate outputs which ultimately results in achievement of outcomes. PEM highlights the significance of right processes that lead to desired results rather than adhering to conventional budgeting approach of following prescribed rules and procedures. PEM also strikes a balance between the flexibility that should necessarily be given to line departments to produce the outputs required to achieve the desired outcomes to ensure accountability of the ministries and line departments for producing the outputs.
Prudence in PEM aims at promoting three result areas namely, aggregate fiscal discipline, allocative efficiency and operational efficiency. Aggregate fiscal discipline refers to the alignment of public expenditure to total revenues, which means keeping the government spending within sustainable limits and this objective is achieved through budget instruments. In our context the budgeting process both at levels of Ministry of Finance and line departments is carried out as a ritual and no thought-out departmental priorities are set out. Usually, an incremental approach is followed and even during implementation of budget at times unfunded items are executed which affects the overall size and volume of the budget. The linkage between Mid Term Budgetary Framework and annual budget of an entity is usually not very clear and these two documents are prepared in isolation. We have seen that in terms of government spending in Pakistan mostly a deficit budget is approved and even the deficit limits imposed by the legislature are seldom observed. The overall fiscal deficit of Pakistan at the close of financial year 2021-22 was more than Rs5,000 billion against projected deficit of Rs. 3,440 billion. This huge deficit is result of massive subsidies given on petroleum product products, debt servicing and in energy sector etc.
The Constitution of Pakistan, Public Financial Management Act 2019 and General Financial Rules provide a comprehensive framework and guidelines in respect of budgeting and expenditure control and overall legislative control and oversight of public spending. The successive annual audits by Auditor General of successive Appropriation Accounts and Financial Statements of the federal government disclosed startling facts about overall financial management especially in respect of our budgeting and expenditure practices. These results abundantly made it clear that performance of both our budgeting and expenditure streams remined unsatisfactory. During the execution of the budget the prescribed expenditure ceilings were disregarded and resultantly supplementary grants (both printed and non-printed) amounting to trillions of rupees were issued. Faulty funds release and surrender mechanisms also contributed towards inefficient execution of the budget. Also, the canons of financial propriety, fiscal discipline and prudence were not followed which rendered the entire budgeting process a meaningless activity and qualitatively marred the transparency, objectivity, equity and control in utilization of public funds.
Allocative efficiency of Public Expenditure Management primarily deals with linkage of budgetary allocations with strategic priorities which highlights the significance of allocation of budgetary resources to programs and activities that promote the strategic priorities of the country. We need to see whether the public expenditure is being incurred to address the public needs and welfare activities within framework of financial prudence and propriety which demands that government officials would exercise same vigilance and care while spending the public money as spending from their own pocket. The government functionaries made responsible to prepare budget and incur the expenditure need to ensure the operational efficiency of public expenditure while providing public services at a reasonable quality and cost.
The relevant question here is whether the country is getting the best buy for taxpayer’s money. The achievement of the above outcome is plagued by complex underlying problems like ritualistic and purely “legalistic’ approach of budgeting, lopsided and politically motivated and myopic allocations of development funds, inefficiencies and corruption at levels of funds commitment and payments. Furthermore, weak and poor internal controls regime in our government departments and entities further aggravates the situation and defeats the very purpose of efficiency and effectiveness of public expenditure that is why most of our public programs, projects and activities fail to achieve their ultimate objectives of providing services to people at their doorstep.
The current socio-economic challenges of Pakistan demand realigning of our national priorities whereby the public funds could be committed and spent on the activities and tasks of real significance in context of general public. In the current scenario provision of aid and rehabilitation of flood affected people in the country should be top priority for the government and for that a cut be applied on Public Sector Development Program and funds be diverted to these activities. Unnecessary non-development expenditure like routine foreign visits of government officials, purchase of furniture and equipment, purchase of official vehicles, POL for transport fleets of the department and such other items be rationalized either through banning few items or rationalizing various ceilings of utilization.
In the long run our budgeting approach should evolve and encompass the basic principles of PEM to meet the expectations of the public in context of effective services delivery. We need to refocus and realign our budget making while blending purely “legalistic” rules and procedures bound approach with PEM approach of focusing on achievement of outcomes through right processes. We need to strengthen our PEM practices while increasing the capacity and skills of our human resource both at managerial and operational levels in fields of budgeting and expenditure. Roles of CDWP and ECNEC need to be strengthened for reprioritization in funding of projects and program and developmental activities which have direct bearing on improving the lives of masses. The practice of doling out public money on basis of political expediencies be discouraged.
The efficiency of funds releases and their surrender during the currency of financial year should be improved while giving flexibility to the Principal Accounting Officers (PAOs). The transparency and accountability of decision making by the PAOs and financial managers of the country needs to be strengthened through regular and robust oversight by the forums like Parliamentary Committees, Cabinet and ECC. Proper disclosure and sharing of information on matters of public interest and importance among different stakeholders could also help in strengthening financial accountability and transparency regime in country. The controls and efficiency of payment system should be further improved through latest IT solutions and interventions and in this direction online billing system introduced in AGPR should be strengthened and gradually rolled over both at federal and provincial levels to minimize operational inefficiencies and chances of corruption. As a nation and state, we must learn to live within our means.