Restructuring Pakistan’s budget to cope revenue shortfall

An economic expert explains the government's need to pass laws that must have positive implications over the country's budget and in the long term, its people.

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Governments have two options when presenting their last budget so close to the election period. They can either omit to present the budget and just wait for the interim federal government, who as per Article 86 of the Constitution, can spend from the federal consolidated fund until the new government comes in.

Alternatively, they can present the budget, but then that has to be for a year and not for four months. In this case, as the Constitution does not stop them, the government chose the second option. Given the multiple measures of cutting taxes or raising salaries that were included in the budget, it can probably be called a ‘populist’ budget.

Governments have two options when presenting their last budget so close to election period.

The other issue to address is how the government said it will finance the budget; where will the revenues come from. Miftah Ismail has said he will use data mining to gather revenues using people’s CNIC’s as a basic document, to collect their data through bank accounts, etc. Theoretically, it is possible but practically, it depends on the next government’s political will, if they will follow this through and execute it.

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This was tried 3 years ago by Ishaq Dar but it remained unsuccessful in its implementation. So, if the upcoming government is successful in using the CNIC as the NTN, then collecting the revenue will be very easy. Otherwise, the situation will get way out of hand.

Our budget is already in deficit by Rs.2200 billion rupees, they have Rs.4700 billion in fixed expenses; Rs.1600bn debt servicing, Rs.1100bn in defense spending and rest in running in government this does not leave much for development.

Current expenditures are always fixed but we borrowed more in the last two years, so there was a debt re-servicing of Rs.1300 billion rupees last year, this year it is Rs.1600 billion rupees. Looking at defense spending, last year it was Rs.940 billion rupees and this year, it rose to Rs.1100 billion rupees.

Given the multiple measures of cutting taxes or raising salaries that were included in the budget, it can probably be called a ‘populist’ budget.

At the beginning of this fiscal year the development budget proposed was Rs1 trillion, now it has been cut to Rs.740 billion and the year before it was cut to Rs.600bn. The problem is that the development budget is the only budget that is discretionary, while the current account is not. If they had announced a high development budget they would have been accused of pre-polling allegations for elections.

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I think they gave a realist budget for any oncoming government. The government is aware of the need to meet the budget deficit target of around 4.9% and one way they are trying to cover it is through negotiating some sort of bonds with China to cover the balance of payments deficit.

It will be a loan with conditions. However, if the bonds don’t mature with China, then we will have to go to the IMF, which would impose its own conditions such as sector reform, etc. The next government will also have to handle the circular debt and debt on public entities.

In the past 5 years, this has never been a part of the budget. This has reached Rs.1 trillion, which we might have to transfer to a holding company. It will definitely be a challenge for the next government.

Dr. Abid Qaiyum Suleri is the head of Sustainable Development Policy Institute. He is a social policy analyst with a PhD in Food Security from University of Greenwich. He serves on many domestic and international Policy Making forums and advisory boards. He is also the editor-in-chief of SDPI peer-reviewed journal, “Journal of Development Policy, Research and Practice”.


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