The last bud­get

The Pak Banker - - 4EDITORIAL - Dr Ash­faque H Khan

THE out­go­ing government pre­sented its fifth and last bud­get on June 1, 2012. Since the year 2012-13 was an elec­tion year, the in­ten­tion of the government was to­tally in­con­sis­tent with the pre­sented bud­getary num­bers. Reck­less spend­ing to ‘win’ elec­tions was the only in­ten­tion of the government. The fi­nance team was asked sim­ply to put suit­able num­bers on the rev­enue side to ar­rive at a rea­son­able bud­get deficit num­ber, which would be ac­cept­able to the IMF.

I wrote numer­ous ar­ti­cles on last year’s bud­get ex­plain­ing that Bud­get 2012-13 was a non-se­ri­ous doc­u­ment and pre­pared in a ca­sual man­ner with frag­ile num­bers. It was clear that this bud­get would die its nat­u­ral death within a few months of be­ing made pub­lic. My po­si­tion was vin­di­cated when fi­nance of­fi­cials an­nounced the death of the bud­get. In so do­ing, the of­fi­cials, the min­is­ter and the min­istry lost their cred­i­bil­ity within and out­side the coun­try.

How non-se­ri­ous the bud­get mak­ers were can be seen from the fol­low­ing facts. The Fed­eral Board of Rev­enue (FBR) was tar­geted to col­lect Rs2381 bil­lion in 2012-13 from the ac­tual col­lec­tion of Rs1881 bil­lion in the pre­vi­ous year – a growth of 26.6 per­cent. On Septem­ber 25, 2012, I wrote that the “FBR is not likely to col­lect be­yond Rs2150 bil­lion in 2012-13.” Since then much water has gone un­der the bridge and the work­ing en­vi­ron­ment has de­te­ri­o­rated sig­nif­i­cantly in the FBR. My cur­rent pro­jec­tion sug­gests that the FBR will face an up­hill task even to col­lect Rs200 bil­lion.

Dur­ing the first eight months of the year (July-Fe­bru­ary) the FBR has col­lected Rs1160 bil­lion as against Rs1110 bil­lion in the cor­re­spond­ing pe­riod of last year, thus reg­is­ter­ing a dis­mal growth of 4.5 per­cent. In or­der to col­lect Rs2000 bil­lion, the FBR needs to col­lect Rs840 bil­lion dur­ing the re­main­ing four months (March-June) as against Rs771 bil­lion in the same pe­riod last year.

In other words, FBR tax col­lec­tion must grow by 9.0 per­cent dur­ing March-June. Can this be pos­si­ble dur­ing the tran­si­tion to a new government? It is there­fore safe to sug­gest that the rev­enue short­fall from the orig­i­nal tar­get is likely to be Rs400 bil­lion. On the non-tax rev­enue side, the government ex­pected to re­ceive Rs79 bil­lion through the sale of 3G li­censes. Since this is not go­ing to ma­te­ri­alise, the to­tal rev­enue short­fall is likely to reach Rs479 bil­lion. On the ex­pen­di­ture side, the ma­jor slip­page is likely to orig­i­nate from the power sec­tor sub­sidy. The government had tar­geted the power sec­tor sub­sidy to Wapda/Pepco and KESC to the ex­tent of Rs185 mil­lion in bud­get 2012-13.

Within eight months of the fis­cal year the government has al­ready doled out Rs235 bil­lion, and there are indi­ca­tions that this may reach close to Rs400 bil­lion by the end of the year, amount­ing to an over­spend­ing of at least Rs215 bil­lion.

On ex­ter­nal in­flows to fi­nance fis­cal deficit, the bud­get mak­ers put Rs46.5 bil­lion un­der the head­ing of Eurobond and Rs74.4 bil­lion un­der the re­ceipts from Eti­salat. In­flows from th­ese two sources have found their places in ev­ery bud­get over the last five years with­out any success. The bud­get de­sign­ers knew very well that th­ese flows would not be re­alised even this year and yet added th­ese to the bud­get as a rou­tine mat­ter. There­fore, ex­ter­nal flows worth Rs121 bil­lion are not likely to be avail­able to fi­nance fis­cal deficit.

With to­tal slip­pages un­der the above listed items amount­ing Rs815 bil­lion or 3.5 per­cent of GDP, the cur­rent year fis­cal deficit is ex­pected to be 8.5 per­cent of GDP or Rs2002 bil­lion. In all th­ese cal­cu­la­tions, I have not added the im­pact of the fi­nan­cial tsunami that del­uged Pak­istan in late Fe­bru­ary and lasted till March 16. The bailout package of PIA; sub­si­dies for tube wells, sugar ex­ports and fer­til­izer; raise in the salary of government ser­vants; the ad­vance pay­ment to oil com­pa­nies are just the tips on the ice­berg. It will take sev­eral months to dig out such ex­pen­di­tures and their bud­getary im­pact. I have also not counted the fis­cal profli­gacy of the prov­inces in the elec­tion year (2012-13). I have al­ways stated that this year’s bud­get deficit may at­tain a new height in the range of 9.5-10.0 per­cent of GDP with all its macroe­co­nomic con­se­quences for the econ­omy. Fi­nanc­ing of deficit in the range of Rs.2.2-2.3 tril­lion would be chal­leng­ing for the care­taker government. Se­ri­ous dam­age to the econ­omy has al­ready been done. Deficit of this mag­ni­tude will fur­ther com­pound the dif­fi­cul­ties for the care­taker as well as the newly elected government.

In­ter­est­ingly, some of the rem­nants of the out­go­ing eco­nomic team have started po­si­tion­ing them­selves to be­come ac­cept­able to the new regime by crit­i­cis­ing the out­go­ing government and its poli­cies. Lit­tle do they know how much they are hated be­cause of their in­com­pe­tence by mil­lions of poor of this coun­try. The care­taker regime with 45 days in its ac­count will face mul­ti­ple chal­lenges on the eco­nomic front. They need to take stock of the dam­age caused by fi­nan­cial hara-kiri and fi­nan­cial tsunami and make ev­ery ef­fort to min­imise the dam­age and pre­pare a struc­ture of the next bud­get.

The bud­get strat­egy pa­per pre­sented to the out­go­ing cab­i­net has been pre­pared by those who have lost their cred­i­bil­ity. There­fore, the care­taker government needs to pre­pare the struc­ture of the bud­get by tak­ing on board the rep­re­sen­ta­tives of the key po­lit­i­cal par­ties. Whoso­ever forms the new government will take lit­tle time to fi­nalise the bud­get 2013-14 which can be pre­sented dur­ing the sec­ond or even third week of June.

Ad­dress­ing the is­sue of debt re­pay­ment cri­sis would be the most crit­i­cal chal­lenge for the care­taker regime. With for­eign ex­change re­serves dwin­dling and over a bil­lion dol­lar pay­ment due to the IMF alone, it will really be a chal­leng­ing time for the care­taker government. May God give us the strength to ab­sorb the im­pact of the last bud­get.

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