Budget 2014-15: Reforms take a back seat

Focus of government remains glued to traditional measures.

ISLAMABAD:

The process of making next year’s budget has almost come to an end after economic managers managed to craft a budget outlay that meets the core condition of the $6.7 billion International Monetary Fund (IMF) loan programme.

In line with an understanding with the IMF, the government will unveil its second budget on June 3 that envisages fiscal deficit of 4.8% of gross domestic product or Rs1.4 trillion.

Over the course of the year, the numbers announced in the budget never materialise and the budget loses its sanctity. The targets set at the beginning of the year are never met.

Except for the increase in salaries and pensions of government employees, there is nothing new in any budget. The measures that successive governments, including the PML-N, have taken are meant to achieve the budget deficit target without caring for the impact on people and the economy.

For the next fiscal year, the proposed size of the budget is roughly Rs3.864 trillion, which is about 8% or Rs268 billion higher than the original budget for the current fiscal year.



An amount of Rs1.347 trillion has been earmarked for debt servicing next year, which constitutes a third of the total budget, making it the single largest expenditure head.

The defence budget is expected to be around Rs700 billion, 11% or Rs73 billion more than this year. Power subsidies are estimated to cost Rs229 billion.

Under the National Finance Commission (NFC) Award, the provinces are going to get Rs1.7 trillion from the federal divisible pool.

The government has not set aside any amount for circular debt in accordance with the Budget Strategy Paper 2014-15 compared to revised allocation of Rs138 billion in the outgoing fiscal year.

To pay pensions to retired employees, Rs215 billion will be allocated in the budget against revised estimate of Rs186 billion this year.

For federal government service delivery, Rs285 billion is expected to be earmarked against current year’s revised estimate of Rs270 billion.

The Public Sector Development Programme (PSDP) is proposed to get Rs525 billion against the revised Rs425 billion this year.

Provinces will achieve a surplus of Rs226 billion in the next budget against the revised surplus of Rs157 billion this year, enabling the central government to bring down overall fiscal deficit to Rs1.4 trillion or 4.8% of GDP in line with the IMF agreement.

Total revenues are envisaged to be Rs3.937 trillion in 2014-15. Of this, the Federal Board of Revenue’s tax collection target is Rs2.81 trillion against revised estimate of Rs2.275 trillion in the current year.

However, non-tax revenues have been brought down and fixed at Rs817 billion compared to revised Rs859 billion for the outgoing year.

After transferring Rs1.7 trillion to the provinces under the NFC Award in the next budget, net revenues left for the Centre will be around Rs2.234 trillion.

This budget snapshot indicates one thing: the government is not going to take drastic steps to introduce much-needed reforms in the areas of energy and taxation.

It will rely again on traditional means to increase revenues while energy reforms will be restricted to only increasing power tariffs without stepping into troubled areas like reducing line losses by controlling theft and improving governance of the power sector.

Published in The Express Tribune, June 2^nd, 2014.

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