The government has been taking a lot of initiatives to streamline the budget procedures, increase the tax revenues and improve the allocative efficiency of government expenditures to upgrade its fiscal performance. On Wednesday, the 21st January, 2009, the Federal Cabinet approved the adoption of Medium Term Budgetary Framework (MTBF) to manage public finances in future.
The key feature of MTBF would be the preparation of a 3-year fiscal framework to ensure that the budget is responsive to both external shocks and changes in policy priorities. According to the Information Minister, the government would involve parliamentary committees for the first time in the budget making process, and concerned ministries would also be invited to give their points of views on funds which they would seek for their projects.
In this way, government would be able to select priority areas in social sectors and ensure good governance in funds' utilisation. The priority of the government was to give relief to the poor and allocate more funds for development projects. Members of the parliament would soon give their recommendations for the next budget through parliamentary committees.
Commenting on the new approach, Advisor to the Prime Minister on Finance, Shaukat Tarin said that adoption of MTBF would be a pragmatic approach to prioritise spending within available resources. The Finance Ministry would provide details of available resources to the ministries and then a bottom-up approach would be adopted to let all ministries avail fiscal space for spending. Such an activity-based budgeting exercise would focus on improving sectoral allocation and restricting wasteful utilisation of public money.
Economic projections for three years would help the government to have an idea about fiscal space before making allocations for development projects. According to Shaukat Tarin, "this is a very pragmatic approach to ensure openness of the budget-making process. We will also share broad parameters of the budget with sub-committees of the National Assembly and Senate to base the whole process on consultations". He also admitted that the concept of a three-year rolling fiscal framework was conceived by the previous government in 2005 to strengthen fiscal discipline and improve allocation of scarce public resources and was financed by UK Department for International Development.
The new strategy approved by the Cabinet for fiscal management of the country appears to be consistent with modern thinking on the subject whereby public representatives are supposed to play a greater role and various ministries are given more powers to set their own priorities. Also, the fiscal outlook to be prepared would be for a period of three years which would be a fairly long time for all the stakeholders to plan their activities in their respective fields with more confidence. The fresh approach would be particularly helpful for investors who would now be less worried about the frequent changes in tax measures and other levies after the new arrangement is put into practice. Besides, it was good to note, probably for the first time in the country's history, that a sitting government has given credit to the past government for initiating a well-thought-out project. This indeed is a good precedent. However, whatever the merits of the new arrangement, it is not easy to ignore its pitfalls and likely repercussions. First of all, it is not difficult to visualise that different parliamentary committees and ministries would certainly launch a propaganda campaign and join a race to highlight the importance of their own projects and claim increasing level of resources from the Ministry of Finance which would find the financing of competing claims a highly frustrating experience. All the concerned groups and entities would talk about and support utilisation of funds in their own fields without adequate regard to the mobilisation of resources.
The task of managing the public finances of the country in such a situation would become all the more difficult when Pakistan has already agreed to reduce its budget deficit from 7.4 percent of GDP in 2007-08 to 3.3 percent of GDP by 2009-10 under the Stand-By Arrangement with the Fund. Also, though it has not been explicitly stated, yet bigger projects involving high development expenditures generally become a casualty when following such an exercise which will be unfortunate for long-term prospects of the country.
Secondly, the implementation status and progress on the MTBF has to be continuously monitored and strictly regulated in keeping with the resource availability of the country which changes very frequently and often without much prior notice. Such a continuous exercise may seem simple and straightforward on paper but would be definitely difficult to follow practically by the existing government machinery. At a time of financial stringency, for instance, no committee or ministry would like its allocation to be reduced and this could pose a major problem for the Ministry of Finance. We hope that the government would keep all these factors in view while embarking on its new strategy of fiscal management.