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The science of a budget

By virtue of parliament’s vote, the budget becomes a legal document and cannot be treated as merely an statement of intentions.

However, Pakistan’s successive governments have presented budgets on unrealistic estimates of expenditure, resource allocation and revenue generation. The current one for fiscal year 2020-21, tabled in the National Assembly, is no exception.

The process of budget-making has been deeply flawed; it is not inclusive and is heavily tilted towards the bureaucracy. One of the reasons politically weak governments, like the current one, are not able to translate their vision into actions is because they usually lack a team to direct financial resources towards achievement of that vision.

For example, PM Khan kept telling the nation that under the government’s Ehsaas Cash Assistance Package Rs190 billion would be disbursed among the affected people. The supplementary budget shows, however, that only Rs85 billion was disbursed. Had there been ownership of politically desirable plans, the original amount would have been achieved.

Most of the media, politicians and economic experts focus their analysis of resource allocation and expenditure on the budget, while the re-adjustment of resources is done in the supplementary budget, which does not draw much attention or criticism.

Railway, for instance, was given an unbudgeted Rs5 billion in the outgoing fiscal year 2019-20 to pay for its losses. The money was not allocated in the budget because it would have drawn criticism on Sheikh Rasheed and people would have questioned his managerial abilities and so the adjustment was done in the supplementary budget.

The supplementary budget plays financial havoc with the actual budget documents. Civilian and non-civilian bureaucracies that have decades long experience, control diverting resources, without a finance bill law, do whatever they prefer, and get it approved in the supplementary budget without many questions being raised.

The supplementary budget serves as a tool to undo or redo what all could not have been done in the actual budget. In the outgoing year, the defence affairs department was allocated Rs1.15 trillion, but the department ended up spending more, which was thus adjusted in the supplementary budget.

This year’s Rs1.6 trillion defence budget (including pensions for retired servicemen), which comes up as four percent of the country’s GDP is the highest in the South Asian region.

It is intriguing to notice billions of rupees being spent by almost all federal departments without approval in the budget. These are expenses like allowances, salaries, etc. One could do the calculations, found in the 159-page supplementary budget papers. If the federal ministries are free to overspend, make unauthorized expenditures, then what is the point in debating a new budget – because in a way the supplementary budget does undo the actual budget.

There is a Rs544 billion supplementary budget, including Rs289 billion for Covid-19. These adjustments are supposed to be on technical grounds, but is that the case?

The Finance Bill 2020-21 will be yet another budget, by the PTI-led coalition, without a constitutionally mandatory National Finance Commission Award. The constitution requires the federal government to adhere to the award. The current resource distribution under the NFC is still being done on the basis of the 1998 census, whereas the constitution requires that the census be notified. Why is there a lack of seriousness on the part of the federal government to continue ignoring the census, as if it has not even happened?

Given the resource availability and potential, the current size of the federal government is unsustainable; it will only continue to add to debt and deficits. It is fiscally irresponsible to present a three trillion rupee deficit budget. And this needs to be raised in parliament; it should not go unquestioned. Under the 18th Amendment most of the social services have been devolved to the provinces. So what is the point of keeping 42 ministries and an army of cabinet ministers and advisers?

By heavily relying on borrowing, filling the expenditure gap with borrowing, Pakistan’s governments have already compromised the future of Pakistani children. Issues like poverty, hunger, inequality and backwardness cannot be addressed if the Rs2.9 trillion out of a total federal revenue of Rs3.9 trillion is to go to debt servicing (interest payment). It is a horrifying picture of the present and the future. The Rs7.1 trillion budget has Rs3.2 trillion deficits. The revenue collection target does not take into account Covid-19’s impact on production, consumption and exports. When the overall GDP of a country is contracting, what economic rationale is there behind setting an ambitious tax collection goal?

A fundamental flaw in Pakistan’s federal democracy is that the Senate does not get a chance to have more of a say in a money bill. This issue has till now gone unquestioned, even though it puts smaller provinces at a disadvantage to one large province which enjoys numerical majority in the lower house of parliament.

Mushtaq Rajpar, "The science of a budget," The News. 2020-06-23.
Keywords: Economics , Tax collection , Financial resources , Deficit budget , Economic experts , Resource Allocation , Financial havoc , Supplementary budget , Bureaucracy , NFC