Development Advocate Pakistan: Not much thought goes into budget-making
Targets set by govt have nothing to do with economic activity, admits economist .
KARACHI:
Did you know that the annual budget in Pakistan is debated in parliament for roughly 15-20 days while India’s legislature sets aside at least 75 days for the same job every year?
No wonder the federal government understates expenditures and overstates revenue collection estimates every year, thus rendering the entire budget-making process pointless.
Speaking at the launch of the third issue of ‘Development Advocate Pakistan: The Political Economy of the Budget’ organised by the United Nations Development Program on Thursday, former bureaucrat Dr Ashfaque H Khan Khan crisply explained the limitations that budget-makers face in Pakistan every year.
“Budget in Pakistan is nothing but the finalisation of the so-called Public Sector Development Programme (PSDP),” according to Khan, who serves as director general of Pakistan’s Debt Office and remained associated with the budget-making process at the federal level between 1999 and 2009.
In layman’s terms, budget-making exercise consists of three major components: revenue, expenditure and the gap between these two heads (also known as the budget deficit).
Calling the annual budget an expenditure-planning exercise, Khan said the government finalises its development spending by ensuring that the projects supported by influential politicians receive adequate funding. Current expenditures are inflexible, but power subsidies are grossly understated in the current expenditure, he added.
The budget deficit – a figure already agreed upon with the International Monetary Fund (IMF) – is subtracted from the sum of current and development spending, which effectively makes the revenue projection a ‘residual item’, Khan said.
In other words, the economist who served at the highest level of the bureaucracy admitted that the tax/revenue collection target set by the federal government every year has nothing to do with the overall level of economic activity in the country.
The skewed approach towards budget preparation leads to numerous problems. With the exception of Balochistan, transfers to the provinces under the National Finance Commission (NFC) Award are based on actual collection of revenues. Therefore, expenditure plans, which are prepared on the basis of inflated tax collection estimates, invariably result in revenue shortfalls taking place from day one.
Not surprisingly, the actual PSDP in 2013-14 was 22.2% less than the amount budgeted at the beginning of the fiscal year. Speaking on the occasion, Social Policy and Development Centre Principal Economist Muhammad Sabir said up to 48% of federal current expenditures are allocated to debt servicing in 2014-15, which is a direct outcome of allocating resources to unproductive sectors of the economy.
“Provinces are simply putting numbers together with little or no conceptualisation. Their annual development plans are merely a post office for transferring money into different pockets,” he said.
Taking part in a panel discussion, member of the National Assembly (MNA) Shahnaz Wazir Ali said political parties face numerous constraints while allocating resources in the federal and provincial budgets every year. “There is actually very little space to manoeuvre,” she said.
Replying to a question about the government’s failure to widen the tax net, Ali said tax avoidance is a social issue and political parties should not be blamed solely.
Issue of agriculture tax
The ceremony was marked by an exchange of harsh comments between lawmakers belonging to the MQM and Murad Ali Shah, who currently serves as the Sindh chief minister’s adviser on finance.
While MQM MNA Farooq Sattar called for imposing agriculture tax in Sindh, Shah insisted that the tax was already in place. “Ignorance is bliss. There is already a 15% tax on agriculture income exceeding Rs300,000 a year,” Shah stated.
Published in The Express Tribune, October 24th, 2014.
Did you know that the annual budget in Pakistan is debated in parliament for roughly 15-20 days while India’s legislature sets aside at least 75 days for the same job every year?
No wonder the federal government understates expenditures and overstates revenue collection estimates every year, thus rendering the entire budget-making process pointless.
Speaking at the launch of the third issue of ‘Development Advocate Pakistan: The Political Economy of the Budget’ organised by the United Nations Development Program on Thursday, former bureaucrat Dr Ashfaque H Khan Khan crisply explained the limitations that budget-makers face in Pakistan every year.
“Budget in Pakistan is nothing but the finalisation of the so-called Public Sector Development Programme (PSDP),” according to Khan, who serves as director general of Pakistan’s Debt Office and remained associated with the budget-making process at the federal level between 1999 and 2009.
In layman’s terms, budget-making exercise consists of three major components: revenue, expenditure and the gap between these two heads (also known as the budget deficit).
Calling the annual budget an expenditure-planning exercise, Khan said the government finalises its development spending by ensuring that the projects supported by influential politicians receive adequate funding. Current expenditures are inflexible, but power subsidies are grossly understated in the current expenditure, he added.
The budget deficit – a figure already agreed upon with the International Monetary Fund (IMF) – is subtracted from the sum of current and development spending, which effectively makes the revenue projection a ‘residual item’, Khan said.
In other words, the economist who served at the highest level of the bureaucracy admitted that the tax/revenue collection target set by the federal government every year has nothing to do with the overall level of economic activity in the country.
The skewed approach towards budget preparation leads to numerous problems. With the exception of Balochistan, transfers to the provinces under the National Finance Commission (NFC) Award are based on actual collection of revenues. Therefore, expenditure plans, which are prepared on the basis of inflated tax collection estimates, invariably result in revenue shortfalls taking place from day one.
Not surprisingly, the actual PSDP in 2013-14 was 22.2% less than the amount budgeted at the beginning of the fiscal year. Speaking on the occasion, Social Policy and Development Centre Principal Economist Muhammad Sabir said up to 48% of federal current expenditures are allocated to debt servicing in 2014-15, which is a direct outcome of allocating resources to unproductive sectors of the economy.
“Provinces are simply putting numbers together with little or no conceptualisation. Their annual development plans are merely a post office for transferring money into different pockets,” he said.
Taking part in a panel discussion, member of the National Assembly (MNA) Shahnaz Wazir Ali said political parties face numerous constraints while allocating resources in the federal and provincial budgets every year. “There is actually very little space to manoeuvre,” she said.
Replying to a question about the government’s failure to widen the tax net, Ali said tax avoidance is a social issue and political parties should not be blamed solely.
Issue of agriculture tax
The ceremony was marked by an exchange of harsh comments between lawmakers belonging to the MQM and Murad Ali Shah, who currently serves as the Sindh chief minister’s adviser on finance.
While MQM MNA Farooq Sattar called for imposing agriculture tax in Sindh, Shah insisted that the tax was already in place. “Ignorance is bliss. There is already a 15% tax on agriculture income exceeding Rs300,000 a year,” Shah stated.
Published in The Express Tribune, October 24th, 2014.