The first litmus test of the newly sworn-in government will be today (Wednesday), when Finance Minister Ishaq Dar presents a Rs3.5 trillion federal budget in a bid to revive the country’s ailing economy.
Designed to target an estimated growth rate of 4.4% over the next fiscal year, the budget will seek to reduce non-development expenditures and fix a burgeoning energy crisis that has been costing the country 2% of gross domestic product annually.
But before the budget is presented to parliament, Prime Minister Nawaz Sharif is expected to chair a cabinet meeting to give a final touch to the new budget.
Briefing the media on the new budget, Dar said that a reduction in the electricity circular debt of over Rs500 billion was one of the main thrusts of the new budget. Simultaneously, the finance minister reiterated that an ambitious revenue collection target has been set for the forthcoming year to finance an economic revival in the country.
He added that a 30% decrease in non-development expenditures was expected in the upcoming budget under austerity measures, and the reduction in expenditure would translate into relief for the common man.
Dar will highlight the salient contours of his government’s new economic policy in the traditional budget speech before the National Assembly, whose special budget session has been summoned by President Zardari at 4:30 pm.
Subsequently, the budget will be presented before the Senate at 6:00pm. Under rules of business, the Senate can debate and make recommendations on money bill, but final authority to pass the budget rests with the National Assembly.
Earlier, the National Economic Council (NEC) approved development projects worth Rs1.155 trillion, a day after the council was constituted. Chaired by the prime minister, the NEC expects to bring inflation down to single digits once again, with a target of 8%.
Yet juggling the tough tasks of fixing systemic bottlenecks in the economy, while providing immediate relief measures, will not be a walk-over for the new government, despite optimistic pronouncements.
Given the mammoth fiscal problems faced by the newly inducted finance team, no big announcement of immediate relief measures is expected in the budget speech.
One of the foremost challenges, which will define the future course of the government, is the large share of debt financing in the federal budget. Similarly, large outlays in defence and subsidies (including those on energy), constitute a burden on the fiscal space available to the present government in the first federal budget of their five year term.
Further complicating budget management is the lack of parliamentary checks on supplementary grants. This means that often the amounts allocated in the budget for a financial year are regularly crossed over in actual expenditures. Last year alone, the budget head for subsidies was surpassed by an additional Rs450 billion in energy subsidies, compared to an original allocation of just Rs238 billion.
As a result, successive governments’ abuse of article 84 of the constitution has led to approval of excessive expenses by the parliament in the form of supplementary grants during the budget session every year. This has added to a burgeoning budget deficit and simultaneously resulted in lax fiscal discipline in a cash-starved economy.
Therefore, while analysts and markets are keenly looking forward to the budget speech, they are expected to equally and keenly observe actual government expenditures during its first term in office, as a measure of the government’s fiscal discipline.
Published in The Express Tribune, June 12th, 2013.