Published On: Fri, Feb 9th, 2018

Why the government is in haste

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The government decision to present upcoming budget 2018-19 in parliament during the second week of May probably on May 12, 2018 has stirred new debate, with economic and political analysts asking as to why the government is in so much haste.

It may be recalled here that the  five-year tenure of PML-N-led regime is going to end on June 3, 2018 so the government intends to get approval of the budget from the National Assembly by end May 2018 as Upper House of the Parliament (Senate) requires 15 days for finalising its recommendations. After receiving recommendations from the Senate, the National Assembly will pass the Finance Bill 2018 and budget 2018-19.

The budget makers of the present regime have started deliberations for finalising the upcoming budget 2018-19 and the biggest dilemma for them for presenting such a budget which should be acceptable to both caretaker set-up as well as incoming government after winning upcoming elections going to be held in 2018.

It is extremely unfortunate that the Abbasi administration is insisting on presenting the budget for the forthcoming fiscal year 2018-19 even though the party’s mandate would expire on 6th June, three weeks prior to the end of the fiscal year, a period when a budget is usually presented.

The precedence of announcing a budget well before the end of the fiscal year on 30th June – last year it was announced on 26th May – was set by Ishaq Dar ostensibly due to the advent of Ramazan on 7th June and his rationale that the budget should be presented and debated before Ramazan; and approved before 30th June. The budget was approved by 13th June last year. This year the first day of Ramazan, subject to the sighting of the moon, is expected to be on 27th May, which, going by last year, would imply that the budget would be presented 10 days earlier or on 15th or 16th of May – six weeks prior to the end of the fiscal year.

This growing gap between the end of the fiscal year and the presentation of the budget is quite unfortunate from an economic perspective for three major reasons. First and foremost, it allows the government to overstate its revenue collections, a tendency in full evidence during the past five budgets presented by the PML-N government. The objective: to project revenue collection for the entire year that shows a lower deficit than is in fact the case or better macroeconomic performance. This tendency has implied understating of the need to procure loans during the last six weeks of the fiscal year, both from domestic and external sources, which in turn has raised the current expenditure to more than was budgeted. Secondly, the tendency of all administrations, and this is especially so during an election year, to inject unbudgeted amounts for development budgets, which has effectively implied extending resources to the ruling party’s parliamentarians for development purposes in what is termed “pre-poll rigging”. There is little accountability of these resources and at the same time, their impact on the budget deficit is negative. And finally, lower revenue collections and higher expenditure would lead to a higher budget deficit and there is evidence to suggest that the actual deficit maybe closer to what the PML-N government inherited in 2013, around 8.3 percent, rather than what was claimed by Dar during his budget speech in 2017 namely that the deficit would be a ‘negative’ 4.1 percent – a target that has been upgraded by the current batch of economic managers who maintain that they would contain the deficit to 5 percent. However, this would require considerable data fudging which would be made easy based on the projections by the economic team with respect to revenue collections, expenditure and the resulting deficit. Ishaq Dar, like his predecessors, continued the tendency, while he was a functional Finance Minister, to make his own budget statements irrelevant on the first day of the new fiscal year namely 1st July.

The revenue collections for the outgoing year were overstated with advance tax collections as well as delays in refunds that in turn seriously compromised the country’s export capacity. However, in addition, Dar began to understate the external debt servicing by keeping the rupee overvalued, a tendency that further negatively impacted on exports accounting for a steady decline during the past two years.

The Abbasi administration has allowed, albeit reluctantly, the rupee to depreciate. A stronger rupee therefore has not helped current account deficit improve. To conclude, one would hope that the Abbasi administration does the economically, politically and morally right thing and desists from presenting the budget so much in advance.

Ideally, a committee represented by the parties based on their strength in parliament is required to be formed to reach a consensus on revenue and expenditure priorities; however, this seems to be highly unlikely in our politically-charged current environment.

In this context, one would hope that parliament decides on allowing the caretakers to take some minimal financial decisions till the next administration is in place as a result of the polls.


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