MoF and figure controversies

The article by Dr Ashfaque Hasan Khan [Sit-ins and economy, Business Recorder, November 3, 2014] and its rejoinder by the Ministry of Finance [Rejoinder by MoF: 'Sit-ins and economy', Business Recorder, November 17, 2014] has once again raised some fundamental issues about reliability of official data, especially claims about restricting budget deficit to 5.5% during fiscal year 2013-14.
The Ministry of Finance (MoF) did not issue any contradiction/rejoinder when about two months back, Muhammad Sabir, Principal Economist at the Social Policy Development Centre (SPDC), in his article, Federal Budget FY15: Tale of fiscal stabilisation, [Business Recorder, September 17, 2014] claimed: "In order to lower the overall budget deficit, the federal budget documents show provincial surpluses of Rs 183 billion in 2013-14 and Rs 289 billion in 2014-15. As a result, overall budget deficit in 2013 -14 declines to Rs 1.48 trillion from Rs 1.67 trillion, which is exactly 5.8 percent of the projected GDP. The computation of the federal budget deficit simply requires subtraction of total expenditures (sum of net current expenditures and federal development expenditures) from total revenues (sum of net revenue receipts and net lending to others). The result shows a budget deficit of Rs 1.7 trillion which is roughly 5.9 percent of the GDP".
It is interesting to note that in its rejoinder to article by Dr Ashfaque, the MoF claimed that "The economy had just started to recover as it witnessed a growth of 4.14 percent during 2013-14, highest during the last six years. The budget deficit remained 5.5 percent during 2013-14 against 8.2 percent in 2012-13, an unprecedented fiscal adjustment in country's history without a cut in the development spending which rose from the budgeted Rs 425 billion to Rs 441 billion". Dr Ashfaque in his article said that "Pakistan's economy grew in the range of 3.3-3.5 percent-the lowest in the last four years and budget deficit surged to 8.4 percent-one of the worst in the country's history (in the absence of manipulation of statistics) in 2013 -14". The calculation of budget deficit in fiscal year 2013-14 was elaborated by Muhammad Sabir in his article as under:
"To check the consistency of provincial surplus, province-wise and aggregate budget surpluses/deficits are computed by using provincial budget documents. Surprisingly, the result indicates that Sindh has a deficit of more than Rs 10 billion instead of surplus. Among the rest of three provinces, Punjab has a surplus of Rs 35 billion, Khyber Pakhtunkhwa of Rs 13 billion and Balochistan has budget surplus of roughly Rs 14 billion. The sum of these budgetary balances result in a net surplus of Rs 51.6 billion instead a surplus of Rs 183 billion for 2013-14. The situation for 2014-15 depicts a gloomy picture since the aggregate projected provincial budget surplus is only Rs 7 billion rather a surplus of Rs 289 billion.
Based on these estimates, it can be inferred that the large deviation in budgeted and revised estimates of budget deficit pertains to systematic errors, which may have been made intentionally to show a lower deficit within the prescribed limits of IMF. If such budgeting practices continue then it would further erode the credibility of the government among people, donor agencies and in the eyes of IMF. Moreover, it creates uncertainties in federal and provincial fiscal planning, which is a potential harbinger of negative implication for development".
Strangely, the MoF intentionally or unintentionally opted not to comment on strong-worded remarks, observations and conclusions made by Muhammad Sabir in his article published in Business Recorder of September 17, 2014. This article is carved out from the detailed paper, An Evaluation of the Federal Budget 2014-15, co-authored by Dr Hafiz A. Pasha, Muhammad Sabir and Iffat Ara, published by SPDC, giving the bases of contesting the official figures about fiscal deficit, growth rate, tax collection and other indices. It is available at http://www.spdc.org.pk/Data/Publication/PDF/RR88.pdf. The MoF, however, confined itself to dispel what it calls "misrepresentations" by Dr Ashfaque. Dr Ashfaque only repeated what was already published many months back by SPDC. MoF must have also contested the paper by SPDC to show fairness-official website of MoF (http://finance.gov.pk/rebuttals_details.html) shows no such rebuttal/rejoinder.
Muhammad Sabir, in Table 1 of his article highlighted that the "net revenue receipts-sum of both tax and non-tax revenues after excluding the provincial share in revenues- surpasses the budget estimates for 2013-14 by 13.9 percent as per revised estimates. He said that "scrutiny of various components of net revenue receipts indicates that it is not due to taxation efforts of federal government. In fact, once again federal government has failed to achieve its tax target for 2013-14 even after including Rs 88 billion from Gas Infrastructure Development Cess (GIDC). The increase in net revenue receipts is derived by tremendous growth in non-tax revenues. Foreign grants of more than Rs 204 billion (including grant from a friendly country) is the largest contributor to this growth. Other two major contributors are State Bank profit and other profits. While, former revised upward to Rs 260 billion against the budget estimate of Rs 200 billion, the latter shows Rs 67.6 billion as revised estimate from zero budget estimate. Given that government retired domestic debt including the loan from State Bank in 2013-14, this huge growth in the SBP profit is an overestimation." It is not understandable why MOF ignored the statement regarding "overestimation of SBP profits" by Muhammad Sabir but took strong exception when the same was articulated by Dr Ashfaque after two months.
Muhammad Sabir also contested the oft-repeated claim of curtailment of current expenditure by Finance Minister Ishaq Dar. It was mentioned in the article that "On expenditure side, net current expenditure, after excluding repayment of foreign debt, reveals an increase of more than 4 percent compared to budget estimates set for the 2013-14. An analysis of the trend in current expenditures and detailed screening of federal budget documents highlight that this may further augment if government tries to retire circular debt similar to last year. In contrast to current expenditure, federal PSDP shows a decline of 21 percent compared to budget estimates. However, development expenditures outside PSDP show phenomenal growth". Till today no contradiction/rejoinder is issued by MoF on this claim of Muhammad Sabir or detailed paper published by SPDC. However, as Dr Ashfaque specifically repudiated claims of Dar that "PAT-PTI protest has caused billions of rupees loss to the economy, the cost ranging between Rs 300 billion to Rs 1000 billion," it irked him and, hence, rejoinder was issued by MoF. This confirms the claim of Dr Ashfaque that such statements by the government are "political" having "no economic foundation".
If the government is convinced that it achieved wonders; for example claim of 16% growth in tax collection, it must order forensic audit of Federal Board of Revenue (FBR), which every year blocks refunds of billions of rupees and secures billions as "advance not due" to show "higher collection" (sic). On April 23, 2014, the Chairman FBR admitted before the Senate's Standing Committee on Finance that refunds of Rs 97 billion were due. This was not the first time that FBR's Chief made such a confession. Way back in 2005, the then Chairman admitted before Public Accounts Committee that refunds worth Rs 321 billion due to banks as on 30 June 2005 were not paid. He also admitted that collection for the financial year 2004-05 was overstated to the extent of Rs 20 billion by securing advances.
The jugglery of figures, if correctly pointed out by experts, is a national disgrace. It amounts to abuse of the system at the highest level. The allegations that top brass in MOF and FBR represents a team of skillful data manipulators, and that all this has been done right under the noses of IMF and other donors, needs thorough probe by the Parliament. Needless to emphasise that such malpractices distort the image of the government and erode already tarnished credibility of the country.
(The writers, partners in law firm, Huzaima & Ikram, are Adjunct Faculty at Lahore University of Management Sciences)