Illusions galore?

The budget for 2017-18 creates several positive illusions at first glance but a closer look reveals little may change in terms of policy or in terms of its thrust. Total net budgeted revenue (tax and non tax) estimated at 2926 billion rupees (after subtracting provincial share from the divisible pool budgeted at 2384 billion rupees) can pick up 61 percent of total expenditure budgeted for next year of 4752.9 billion rupees (with current expenditure estimated at 3763.7 billion rupees - a decline of 3.6 percent from the revised estimates of last year with a 5.5 percent decline in the running of the civilian government, decline of 17.88 percent in subsidies, and a rise in defence budget of 9.3 percent). This is an improvement from last year''''s 54 percent - 2616 billion rupees net revenue and a total of 4841 billion rupees total expenditure in the revised estimates.
But it is critical to look at Dar''''s track record of meeting the budgeted targets. Net revenue receipts for last year fell short of the budgeted targets by 163 billion rupees while current expenditure rose by 61 billion rupees and development expenditure was curtailed by 85 billion rupees and here comes the whopper: bank borrowing rose from the budgeted 452,915 billion rupees to 741,367 billion rupees - a rise of 63 percent. Dar had budgeted 390 billion rupees bank borrowing for the current year and this would in all probability be doubled if not more during the year.
Borrowing from abroad was budgeted at 796785 billion rupees in 2016-17 but 971603 billion rupees was borrowed as per the revised estimates for the year - an increase of nearly 22 percent. And disturbingly the bulk of this enhanced borrowing was from foreign commercial banks - budgeted at 211.5 billion rupees and revised upward to 389 billion rupees - a rise of 83 percent. In the next fiscal year Dar has budgeted 105 billion rupees from this expensive source of borrowing and it is highly likely that the figure would be tripled by the end of the fiscal year. Programme lending or budgetary support has been shrinking since Pakistan went off the International Monetary Fund (IMF) programme as multilateral and bilateral donors aware that the Fund is no longer rigidly monitoring the government''''s adherence to time bound reforms have less comfort level that the country would continue on the path to reform especially given that this is an election year.
The 2017-18 election year budget reflects a set of measures that are common to not only former civilian administrations but also military dictators - lower taxes for the general public particularly on food items and in this budget Dar announced relief measures estimated at 120 billion rupees including lower taxes on farm inputs/poultry sector, mobile users, continued subsidy on fertilizers, a historically high outlay on PSDP; and during the last decade and a half it has become critical from a political perspective to deal with severe electricity shortages and ending load shedding by next year was committed by the Finance Minister in his speech. The budget has earmarked 15 billion rupees for power sector PSE reforms, a new item, and while it envisages a reduction in inter-disco tariff differential from 91 billion rupees in the revised estimates of this year to 65 billion rupees next year yet it is doubtful if this would be achieved as in the current year the government''''s revised estimates were 52 percent higher than what was budgeted; however K Electric''''s tariff differential declined from the budgeted 22.6 billion rupees to 15.4 billion rupees in the revised estimates for this year and next year it would receive 15.5 billion rupees as tariff differential.
Higher net tax revenue is envisaged for next year amounting to 87.53 billion rupees under three indirect tax heads (customs duties including regulatory duty imposed on 565 luxury and non-essential items to generate 18 percent more revenue than the revised estimates for the current year, sales tax - the highest source of tax revenue for the government - would generate 11 percent more than the revised estimates of the current year and federal excise 12 percent more). Direct taxes under the head withholding taxes with non filers to pay 50 percent higher than the filers, in the sales tax mode which actually qualifies it as an indirect tax, would generate 15 percent higher revenue than in the revised estimates of the current year. Super tax would be extended on those with an income greater than 500 million rupees at 4 percent for banking companies and 3 percent for others. Privatization as a policy would remain suspended for the election year, with a projected 50 billion rupee budgeted revenue - so much for PML-N the 2013 manifesto.
In March 2017, the Ministry of Finance provided an indicative budget ceiling of 700 billion rupees to the Ministry of Planning, Development and Reforms for Public Sector Development Programme (PSDP) - the same amount as that budgeted for 2015-16 (two years ago) and 12.5 percent lower than the 800 billion rupees that was budgeted in 2016-17.
The Planning Ministry in its working paper for annual plan coordination committee proposed a federal PSDP of 1150 billion rupees claiming that 700 billion rupees indicative budget was not adequate to meet the fund requirements of China Pakistan Economic Corridor projects which prompted the Ministry of Finance to earmark 1001 billion rupees for PSDP for the forthcoming fiscal year - 87 percent of what was requested. To raise funds that would enable the implementation of the remaining 13 percent would, Planning Ministry contended, require identifying projects on innovative modes of financing (public private partnership, community participation, cost sharing by non government organizations etc.)
Provincial PSDP would be allocated 1112 billion rupees next fiscal year which is 27 percent higher than the 875 billion rupees budgeted for the current year. However data reveals that provincial PSDP shortfall by the end of the year during the tenure of Ishaq Dar has been, on average, high and was set at 339 billion rupees for the current year which sources indicate was missed by a wide margin and 347.3 billion rupees for next year - an amount that is unlikely to be met given that this is an election year.
A special welfare scheme was announced for the families of shuhada giving enhanced return in central directorate savings schemes though the ministry of finance recently reduced the rate of return on the schemes for pensioners recently and allocated a quota of 2 percent for special persons. He promised clearance of all refunds but in next fiscal year so as to contain the deficit for the current year.