Elections and the budget 2018-19

The National Assembly has passed the delimitation of constituencies’ bill with 242 votes in favour and one against paving the way for the Election Commission of Pakistan (ECP) to complete the necessary exercise and hold general elections earliest by August 2018.

The Secretary of the ECP had brought it to the notice of the relevant authorities that if the census results were finalized in April 2018, the date indicated by the Census Commissioner, then ECP would be unable to complete the delimitation exercise by the due date of elections. Complicating the issue was the fact that once a census exercise is undertaken the finalized results, and not the provisional results as available today, would be used by the ECP to begin the delimitation exercise, thus the need for the delimitation of the constituencies bill.

Reservations of the PPP and the MQM-P with respect to the census results pertaining to Karachi were dealt with in the Council of Common Interests (CCI) meeting held Monday last (13 November) with the agreement that one percent of the population blocks across the country would be audited by a third party. The selection of the blocks would determine whether reservations of these two parties have been appropriately addressed but the consensus today is that all lacunae in undertaking the delimitation exercise by the ECP – constitutional and procedural – have been removed and elections can be held on time. Unfortunately, what has been ignored is the budget cycle of the country which commences on 1 July and requires the passage of the budget prior to that date.

The government presented its budget to parliament on 26 May last year, almost five weeks prior to the end of the fiscal year, ostensibly due to Ramazan, accounting for a shortfall in revenue collections and understating of expenditure and borrowing from the domestic and foreign banking sector for 2016-17 that was even more pronounced than in years when the budget was presented around the first to second week of June. This, in turn, had implications for the projections for the current year’s budget 2017-18.

Ishaq Dar, who took over the finance portfolio in June 2013, has been consistently accused of presenting flawed macroeconomic data, through the administrative control over the Statistics Division by the Finance Ministry, a charge that he denied but, given his pervasive power under the Sharif administration, never bothered to address on technical grounds. What has been even more disturbing is Dar’s public acknowledgement that he overstated budgeted revenue to challenge the staff of Federal Board of Revenue (FBR), a claim that accounted for mini-budgets in the four years past. In addition, the enhanced revenue collections during Dar’s tenure are sourced to a raise in taxes on existing taxpayers and on withholding taxes, collected by withholding agents and not FBR officials, imposed in the sales tax mode (as indirect rather than direct taxes). Thus, the clamour for tax reforms to render our tax system fair, equitable and non-anomalous never abated during the Dar years. And Pakistan has witnessed a decline in its world ranking in ease of doing business as per the World Bank’s annual assessment since 2013. Additionally, Dar kept the rupee overvalued to understate the interest payable and repayments on a rapidly rising external debt as and when due which negatively impacted on our exports. These are some of the flawed economic policies endorsed by Finance Minister Dar.

Dar’s legal problems, his complete withdrawal from the Finance Ministry since the July verdict in the Panama Papers case, coupled with his decision to leave Pakistan with little likelihood of returning, implies that he may not be the architect of the next budget; yet what must be taken into account before presenting the next budget for the country are two critical factors. First and foremost the ruling party needs to appoint a finance minister who is present in the country and who can proactively participate in the budget making exercise. At present, the Abbasi administration is taking shotgun measures to deal with erupting macro-economic crises and, unfortunately, following the Dar model with (i) extensions as to the date of applicability (example export promotion package with the Abbasi administration extending the date of applicability of the eligibility criteria by withdrawing the condition of 10 percent rise in exports), or raising duties to generate more revenue (the recently imposed regulatory duties). There is a need to revisit all Dar’s policies as well as resist the temptation to manipulate data to show better performance than is in the fact the case.

Secondly, should the ruling party headed by a prime minister who certainly did not get the mandate from the people to be the chief executive, be empowered to present a budget which could be used for electoral gains? And, as no doubt rival political parties may claim legitimately, should the PML-N be allowed to engage in obvious pre-poll rigging by announcing a budget at the tail end of their term? Democratic norms dictate that this should not be the case and one would hope that parliament takes appropriate measures to: (i) present a three to four month statement of accounts in June during Ramazan (with more accurate data available) to cover the caretaker period as well; to argue that parliament (whose members get paid a stipend) or the Finance Ministry officials (who are paid an extra allowance for engaging in the budget making exercise in any case) cannot work effectively during Ramazan is not an acceptable premise even from the perspective of our religion. It must be borne in mind that if the government decides to present a budget prior to Ramazan then it would have to present it six weeks before the end of the fiscal year and the revenue/expenditure/borrowing projections for 2017-18 would be even more off than what was evident last year. And (ii) set up a committee represented by all political parties according to their strength in parliament to formulate a four month budget. This would require sharing credible data with political parties and agreeing on current expenditure as well as on the type of taxes imposed with the development expenditure allowed only on ongoing projects.

To conclude, there are serious concerns over key macroeconomic variables today and domestic analysts argue that the next government would be compelled to go on yet another International Monetary Fund programme – an argument that necessitates a four-month long consensus budget statement to be presented and approved by parliament by 30 June – the last day of the current fiscal year.