Governments around the world have been accused of manipulating statistics to show better economic performance than is in fact the case. The most common approach is to change the base year to one which would allow the government to show an improvement or, if that is not possible, to show a relatively less steep decline in key macroeconomic variables.
In this instance, while members of the opposition as well as an independent media may take great pains to point out that one cannot compare statistics with the previous year, as it would be tantamount to comparing apples with oranges, yet one cannot reasonably challenge the statistics themselves.
The most common statistics that Western democratic governments try to manipulate are those that matter most to the general public namely Gross Domestic Product (GDP) growth rate, inflation and unemployment levels. In case of poor performance of any or all of these indicators, a government would naturally be focused on formulating and implementing policies focused on improving their performance. During a recession, lower taxes (income and corporate) and lower rates of interest are considered ideal policy options as their implementation would increase the disposable income of households (those who are already in employment and those with mortgages or other consumer borrowings) as well as promote productivity through enhanced private sector borrowing. The net outcome would be higher sales in the economy that, together with low cost of borrowing, fuel productivity which, in turn, would propel the growth rate, lower inflation and increase employment opportunities.
The actual tax rate as well as interest rate would have to be carefully determined premised on existing macroeconomic variables as well as the government's short and medium term objectives. For example, in Greece and Italy with high past borrowing, austerity has implied massive reduction in expenditure across-the-board including on public sector outlays, resulting in lay offs and reductions in social safety net programmes. Additionally, the ongoing recession requires capital injections to grease the wheels of the productive sectors. In short, a balancing act is required in terms of reducing the deficit (extremely unpopular) and injecting capital into the productive sectors, which has created public anger as it is perceived as helping the rich grow richer.
Pakistan's statistics are more blatantly manipulated. Anecdotal evidence reveals that former Prime Minister and Finance Minister Shaukat Aziz routinely altered statistics to show better performance when reviewing data presented by the Federal Bureau of Statistics. Be that as it may, there are some statistics that cannot be manipulated and include the country's exports and imports as well as foreign assistance inflows - portfolio investment as well as foreign direct investment and assistance disbursed by multilaterals and bilaterals.
In the post-9/11 period, the West in general and the US in particular extended massive assistance, which allowed the Musharraf government not to be overly concerned over the country's external accounts. This situation changed during the latter years of the former regime leading to massive manipulation of data by Shaukat Aziz, which rendered it simply unbelievable. This trend is continuing unfortunately as evident from the explanations sought by the Federal Tax Ombudsman from the Federal Board of Revenue with respect to overstating advance tax collections at the end of each fiscal year and presenting gross as opposed to net revenue collections.
What however is further disturbing in Pakistan's case is that our annual budgets, a document that ought to lay out the government's economic vision in terms of dealing with poorly performing macro economic indicators, as well as its commitment to adhere to a set of tax and expenditure measures for a period of 12 months, is increasingly viewed as an unrealistic document given the almost routine significant deviation from its targets at the end of the year. Pakistani budget document in terms of both expenditure allocation and revenue collections is therefore now regarded as not only unrealistic by the public but, according to high level sources within the Finance Ministry, is also known to be such by the economic managers.
In terms of annual tax collections, the Federal Tax Ombudsman finally has proof that there is routine manipulation. The advance income tax payable on 1st July is collected from large taxpayers by end June so that it can added on to the revenue collections for the outgoing year with obvious ramifications on the budget claims for not only the outgoing but also the incoming year. And refunds are held back to shore up revenue for an outgoing year, thus gross instead of net revenue is shown. In terms of external sources of revenue the government insisted on identifying 117 billion rupees as programme loans in 2011-12 that are unlikely to be disbursed due to its inability to convince the International Monetary Fund to either reschedule the stalled and later suspended Stand By Arrangement or to get a Letter of Comfort as required by multilaterals and bilaterals before they can release pledged programme loans. Project assistance, the Budget Strategy Paper 2012-15 notes, has declined.
On the expenditure side current expenditure was increased by a whopping 136 billion rupees more than budgeted last year (with defence only accounting for 2.4 billion rupees out of this total, in spite of claims to the contrary) and development expenditure was slashed by around 100 billion rupees. The following table reveals the budget claims for 2010-11 and actual figures contained in the budget 2011-12 which again differ from the statistics noted in the Budget Strategy Paper 2012-15.
Thus the divergence between the budget targets and the actuals in 2010-11, which again differ from the Finance Division's estimates as contained in the Strategy Paper is indicative of a lack of concern over rationalising key statistics. While some statistics may vary as the budget document reflected was what was desired rather than what was achieved, yet in terms of PSDP for 2010-11 it is fairly evident that the budget statistics are more credible than the recently leaked Strategy Paper's data. Additionally, the claim that the 2011-12 budget target and actual statistics would match, appears to be simply wishful thinking, especially given the fact that the 4 percent budget deficit noted in the budget documents has been revised upward to nearly 6.4 percent by multilateral donors in the flood 2011 Damage Needs Assessment report.
The proposed 2012-13 expenditure and revenue statistics contained in the budget strategy paper do not appear to be any serious attempt to improve the macroeconomic performance but are rather premised on some annual progression considered appropriate. Unfortunately though the cabinet has shot down even these optimistically unrealistic proposals; and averred that the next year's budget would be in line with the aspirations of the people, given the approach of elections, and would be set after discussions with the coalition partners. Based on past precedence this implies heavy outlay for each member of the national assembly and senate who in turn would use discretionary powers to allocate funds for specific projects with an inbuilt mechanism for commissions. Additionally subsidies would rise, which in any case have been double what was budgeted, and current expenditure of the enhanced cabinet would rise as possible seat adjustment with coalition partners is effected to ensure electoral victory.
===============================================================================
Indicative 2010-11 2010-11 2011-12 2011-12 Proposed
budget (budget) (actual) (budget) 2012-13
===============================================================================
Ceiling (Billion $)
-------------------------------------------------------------------------------
Defence 442 (451) 444 495 495 545
PSDP 290 (233) 196 300 299 350
Federal govt 193 (220) 207 223 218 240
-------------------------------------------------------------------------------
Service Delivery
-------------------------------------------------------------------------------
Subsidies 126 (381) 395 180 190 120
Tax revenue 1778 (1673) 1679 2069 2069 2481
-------------------------------------------------------------------------------
Brackets ( ) indicate figures contained in Budget Strategy paper 2012-15.
===============================================================================
Comments
Comments are closed.