A lacklustre budget

The first reaction to the figures presented for the federal budget for 2008-09 is that many of the estimates seem unrealistic at best. For instance, the budgeted amount for overall expenditure is estimated at Rs2,009.8 billion. While this may be higher than the budget estimates of Rs1875 billion for total expenditure for 2007-08, the government and its finance managers would have surely noticed that actual expenditure in 2007-08 was, according to the Economic Survey released on June 10, an astounding Rs2,228.9 billion! This is almost 19 per cent higher than the budgeted estimate and the survey attributes the overrun to the rising

price of oil – which it quotes as being $115 a barrel in May 2008 – and the government having 1.7 million tons of wheat at “all time high prices”. So, if the government (be it the former PML-Q one and partly the caretaker administration of Mohammadmian Soomro) overran the budgeted expenditure estimate by such a massive margin, one can only wonder what gives this government so much confidence for it to set a budgeted amount for overall expenditure

some Rs200 billion lower than the actual expenditure for 2007-08.

Perhaps, one reading of this, giving the current government the benefit of the doubt, could be that the amount indicates a belt-tightening, given the current global economic environment. But here too lies a caveat — two of the key reasons mentioned in the finance ministry’s Economic Survey 2007-08, spiralling oil prices and the government being forced to import 1.7 million tons of wheat at ‘all time high’ prices —- are both likely to stay during 2008-09. The oil factor is obvious: the Economic Survey cites it as being a thorn in the government’s side at a time when the price for a barrel was $115, and now it is close to $140. As for the wheat issue, the reason was smuggling to Afghanistan and hoarding by local sellers, both of which continue unabated. The bulk of the revenue, as expected comes from direct and indirect tax collection but here too the outlook is not all that bright. As admitted by the government itself, Pakistan continues to have among the lowest tax-to-GDP ratios in the world, around 10 per cent, while the average for developing countries is in the region of 17-18 per cent. In this regard, the budgeted estimate for tax collection of Rs1,251.5 billion, compared to Rs1,025 billion for 2007-08 seems overly ambitious. How the government intends to improve the Federal Bureau of Revenue’s efficiency such that its collection increases by almost 25 per cent is something that many would like to pay close attention to in the coming years, especially given that the tax collection and administration mechanism continues to be riddled with corruption and inefficiencies with officials exercising too much discretion and authority. In any case, one needs a booming economy to achieve such an ambitious increase in tax collection and given that growth may be decelerating this may become next to impossible.

The allocation of Rs296.1 billion to defence and services – though the prime minister has said that the defence budget has not risen in real terms – again means that a large chunk of the outlay is reserved for the upkeep of the military and that Pakistan continues to be one of those unenviable developing countries which spend far more on their armies than on arming their citizens with a good education and providing them access to a safe, reliable and affordable healthcare system. The biggest chunk of the overall budget expenditure is, as always, to go on running the government. At a whopping Rs929.5 billion, the amount is also said to include pensions as well as debt servicing but is reflective of a very large, overbearing, bureaucratic and generally inefficient government machinery. That it has been rewarded in the form of higher salaries will be more or less a slap in the face of salaried persons working in the private sector and other non-government fields because for most of them, their employers do not necessarily index their wages to inflation.

The public sector development programme (PSDP) has been budgeted at Rs549.7 billion, slightly lower than last year but it remains to be seen whether the oil price crisis and other economic issues don’t end up restricting the government’s ability to finance the PSDP. In this regard, the deficit between expenditure and revenue for 2008-09 is to be met partly by government borrowing, but this figure too appears to be highly unrealistic and ignores what happened on this account during 2007-08. The government has set a limit of Rs149 billion for bank borrowing to finance its expenditures for 2008-09 but surely it knows that this is low given that during 2007-08 actual bank borrowing by the government crossed the budget estimate by a staggering 330.5 per cent! Again, the simply, almost school-boyish question, that immediately comes to mind is that how does the present government intend to restrict bank borrowing to the targeted amount given that many of the external factors that were behind the overrun for 2007-08 are very much there.

The depressing fact is that the financing of the government machinery, debt servicing and defence budget have consumed 60.9 per cent of the 2008-09 allocations. For this to be the case with a country as poor as ours is nothing but a shame. Yes miracles should not be expected overnight but the dismal pattern of the past, with these three heads eating up close to two-thirds of every rupee that the government spends is being repeated all over again. And at a time when the average Pakistani’s individual budget is shrinking from all sides. It is reducing because of rising petrol and kerosene prices and it is shrinking because of rampant inflation, particularly food inflation. At the same time, his/her access to public services and amenities such as sanitation, clean drinking water and safe and reliable roads has not improved in terms of quality. In fact, the same is true for education and healthcare facilities or even to a provision as basic as vaccination, where for example the re-emergence of polio in parts of the country means that the inoculation programme for combating it is seriously flawed. The only consolation for the PPP government and Mr Naveed Qamar is perhaps that much of this has been inherited by them, given that the government was formed less than three months ago. However, that is of little consolation to the ordinary Pakistani for whom the budget, yet again, holds little promise or hope. (The News, Pakistan.)