Budget Preparation: an exercise in futility!

The yearly exercise of budget preparation is currently underway in Islamabad, and like previous year, this budget, too, shall pass with very little relevance and significance for people on the main street. When the budget-making process is viewed as a mere accounting exercise, then a valuable opportunity for economic reforms, trade promotion and prudent debt management is lost.
The government has been taking keen pride for raising development allocations over the past few years. The FY13, too, may have a national development budget as high as Rs.848 billion. The illustration shows that actual disbursement for Federal and Provincial PSDPs have been markedly lower than the earmarked funds in previous years, manifesting a trend of commitments beyond the states fiscal capacity.
Over the years, unfinished projects have had to compete with new ones approved on varied motivations, thereby increasing the Federal PSDP throw forward to nearly Rs.3 trillion. At current funding levels and with no new projects coming in, it will take the existing projects ten years to reach the finishing line! The dilution in the intended public benefits due to time and cost overruns renders the whole scheme meaningless.
Hence, the higher allocations for FY13 would do little good to development as the journey of any new project from PC1 stage to PC2 may take years, not months or weeks. The fiscal space is visibly lacking as the precious little that is left for the Federal Government after the divisible pool transfers and grants to the provinces is consumed in debt servicing, security and defence expenditures and subsidies.
It would be interesting to see what transpires in the upcoming meeting of the Annual Plan Coordination Committee. The composition of the new projects needs to be more towards harnessing human capital available in the country rather than continuing the fixation with brick and mortar schemes. The large footprint of Federal ministries and divisions on public sector development must be reduced.
The issues that affect the businesses and ordinary citizens are mostly in the hands of govt. departments like FBR and sector regulators like NEPRA and OGRA. With the SRO culture back in vogue amid lack of policy frameworks for different sectors, the relevance of the budgetary exercise is under question.
The measures that the government does announce are in fact not followed up. For instance, the finance minister had announced during his FY12 budget speech to go after and tax the 7 lac potential taxpayers, all high net worth individuals owning lavish residences, driving luxury cars and having multiple foreign trips.
Speaking at a pre-budget seminar organised by SDPI in Islamabad earlier this week, Sakib Sherani, an independent economist, said: "If those 776,000 potential taxpayers were taxed, lets say a conservative sum of one lac rupees each, this measure alone would have raised the government Rs.77 billion in direct taxes." He lamented that the PACCS had been closed down, which is a victory for the vested interests.
The fiscal limitations necessitate that the government broaden its revenue pool through doable measures and should only commit what it, or the next government, can actually follow through during the next fiscal year. Otherwise, the economy would remain on the autopilot mode if the Finance Minister and his team chose not to act, or worse appear to be not in the know.