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Coronavirus
LOW Source: covid.gov.pk
Pakistan Deaths
28,745
824hr
Pakistan Cases
1,285,631
37724hr
0.85% positivity
Sindh
476,017
Punjab
443,240
Balochistan
33,488
Islamabad
107,765
KPK
180,146

The Federal Budget was presented on June 12 which was followed by the provincial budgets. Pakistan is a Federation and there is a clear distribution of roles and responsibilities of different levels of governments. However, for a Pakistani citizen the ultimate desire is availability of efficient governance at all levels. There have hardly been any attempt where a proper receipt and payment account of Pakistan as a Federation is made to identify how the resources are collected and how they are spent on the welfare of people. Lack of primary state services is generally cited as an excuse for non-voluntary payment of taxes.

It has been observed that all debates on budgets revolve around receipts. The budget exercise appears to be a discussion between the taxpayer and tax collecting agency. In the whole debate on budget, Pakistan and the people of Pakistan are missed out. The most glaring sign is an almost 100 percent discussion on the revenue side without taking into account the 'expenditure' side as a whole. I have yet to see a consolidated expenditure figure in any document.

Euphoria of budget discussion starts with the Federal Budget and dies down after two three days during which provincial budgets are presented and go almost unnoticed on the national economic debate forums. This intellectual disintegration is not fruitful. People's welfare and delivery is lost somewhere in-between.

In Pakistan, there is a general perception that there is a shortage of funds with the government, therefore, welfare activities for the people are not being provided. There is also a perception that there is some direct linkage between the 'development expenditure' as shown in the budget figures and the availability of welfare to the public at large. Both these assertions are not entirely correct. Part of these assertions may be correct; however, in the following paragraphs I have tried to understand the budget from both angles especially stressing on the expenditure side taking into account provincial expenditure alongwith Federal Expenditure and eliminating provincial transfers in the process. This is actually the budget of Pakistan. In this calculation I have intentionally not taken into account capital receipts, sources of financing the deficit and the public sector development programs. The purpose of these eliminations is that even on a 'day to day' basis our books are not balanced. The third aspect which is generally missed is the 'reasonableness' of output from the expenditure made for the welfare of people at large like public security, health, education infrastructure, etc., out of the expenditure made. For that purpose it is not relevant which strata of government undertakes that function.

In my view all these matters are not properly disseminated to the people of Pakistan. There is a need to start this debate and make all governments accountable before the people.

In case if 'Pakistan's Budget' as presented by the federal government and the provincial budgets are added to it then the position of current receipts and expenditure of the country for the upcoming year 2021-2022 will emerge as an estimate as under. This does not include expenditure on development programmes and capital receipts. These are only current expenditures.

Seen from a historical perspective, it is to be found out whether or not there has been any substantial change in this current account position for the last five decades after the fall of East Pakistan and is there any expected change in the near future. It is my regrettable conclusion that there has been no concerted effort to have a paradigm change in receipts as well as the expenditure side. Technically, we copy/paste with some variation. The expenditure side has even worsened for the reason that instead of stressing on 'improvement in delivery' greater emphasis is laid down on the level of governments who are supposed to deliver. Provincial governments are highly sensitive to the matter of the National Finance Commission Award; however in the last thirty years of my involvement in these matters I have yet to see a discussion on the Provincial Finance Commission that deals with the subject and basis of allocation of resources to district level. Similarly, there are no extraordinary efforts to improve the collection of taxes which are collectible by the provincial governments like agricultural income tax.

In the following paragraphs each head is discussed separately:

Interest: Interest expense is the result not the cause of the problem. Continuous shortfall in income will continue to increase the borrowing of the government and resultantly the interest expense of the government. Each year a substantial sum is added. There is no immediate recipe except a cut-down in Federal deficit, which is not possible in the present framework. Higher base rate had a very negative impact on this balance that has been partly corrected.

The present state of affairs cannot continue for a long time and some out of box solution would have to be designed to reduce the recurring increasing burden of debt and its cost to the government. In my article on the comparative budget with India I had identified that in India in the case of the Union Budget (equivalent to Federal Budget) there is a net receipt on interest on loans to provinces. In short, Pakistan would have to devise some strategy to get rid of this constant increase in interest costs. The only recipe is an increase in revenue which has almost remained constant in relation to GDP. This is not a new problem however we have to accept that all the governments have adopted an evasive policy on this issue. It is my firm view that there will be very few economies with a population of our size where interest cost is almost 50 percent of total revenue of the state. This is not a sustainable position.

Defence: There are two elements to the expenditure under this head: overall size and possibility of variation. With respect to the latter it is my view that even 10 to 20 percent variation on either side will not make a substantial difference in the overall position; therefore, the question of variation is not relevant. The primary question of original size is a subject that is always open to discussion; however, keeping the other figures in view, as identified above, in my opinion this subject is not as relevant as it is generally perceived.

Subsidies and grants: This expenditure of around Rs 1700 billion is one of the biggest problems of Pakistan's economy. This whole burden is borne by the Federal Government and two main components of this expenditure are 'subsidy' on the power sector and losses of state-owned enterprises like PIA, Railways, Pakistan Steels, etc. In my view, both are completely different subjects. In the case of power it is a ground reality that the basket cost of energy produced (hydel, gas and thermal) is higher than the average sale price of such product to the people of Pakistan and the differential is to be borne by the Government of Pakistan as a policy decision. It is true that such an amount is to be kept low by reducing transmission and recovery losses however, even in the perfect circumstances there is a gap to be bridged and the only entity that has to bridge that gap is the Government of Pakistan. In fact the account of around Rs 650 billion kept under this head is not sufficient to plug the gap and actual expenditure may be higher than this figure.

The next issue relates to state run enterprises such as PIA, Pakistan Railways and Pakistan Steel. These enterprises are a constant burden on the resources of the country. It is very unfortunate that in the last twenty-five to thirty years no serious effort has been made to remove this huge burden on the federal budget.

If it is a government policy that a subsidised railway system is to be maintained then the same should be adopted as a policy. Railways is a subject that has been completely ignored in Pakistan. In India, railways is given so much importance that there is a separate budget presentation in the Parliament for Railways. In Pakistan due importance should be given to this subject.

It is further suggested that PIA and Pakistan Steel be taken out from the process of Privatisation Commission and a special task force with the participation of the opposition be constituted to handle the issue of meeting the recurring losses of such enterprises. There has to be a long-term sustainable solution.

Expense in running the government: The whole purpose of this article is to identify the quantum of the country's expenditure and lay before the readers the importance of proper management of this account. This amount represents all aggregate of the current expenditure of the Federal Government plus the four provincial governments. Expenditure on education and health spent by the Federal Government and respective provincial governments has been taken out from this amount for special analysis. This means that this sum of Rs 3000 billion is the amount spent by the governments on their current expenditures, excluding health and education. This includes all heads such as security, law and administration, social welfare etc. The questions under consideration in this respect are:

  • Is the size of the government - Federal, provincial and district - has grown large in relation to resources of the government and the expenditure?

  • Even if the size is in line with the requirements whether or not the expenses incurred by the government result in commensurate results for the people; and

  • Is there a proper mechanism to measure efficacy and efficiency of the expenditure made on this account?

There can be many dimensions to this discussion however there is an almost general consensus that the manner in which this huge sum of Rs 3000 billion is spent, it does not yield the result which this outlay should, for the benefit of the people. For example, one commonly observed phenomenon is enough to highlight the issue. Is it fair to see tens of newly-purchased security vehicles of police with high government officials, when they travel or visit their friends and relatives (not on government duty) whereas ordinary police stations do not have sufficient stationery and toilets. Accused are asked to pay to police for their travel on the date of hearing to the courts. This discrimination and abuse has to be corrected. People are not annoyed with lack of facilities; there is annoyance when it is seen that public expenditures out of government funds are used for the privileged classes whereas ordinary people suffer due to lack of facilities which the state has to provide. .

It is my personal opinion that the size of government in many sectors has ballooned and is not in line with the current national requirements and modern manners of running the government. There is a need for complete overhaul of state structure.

Health and education: These are the most neglected sectors of Pakistan. In case, if the expenditure incurred under these two heads is further analysed it will reveal that bulk of this expense is actually salaries and allowances of teachers and medical staff. There is a reasonable sum allocated for repairs and renovation of schools and colleges however as will be observed throughout the country, the state of affairs of the attendance of teachers in classrooms and medical staff in hospitals is deplorable and the general condition of schools and colleges buildings is highly unsatisfactory.

The problem in this sector is essentially of intellectual nature. People at large, including some intellectuals, have decided that the state is to be taken out from the fields of health and education. This is a disastrous approach. Even the most capitalistic economies like the USA, the EU and the UK acknowledge and rightly so, that providing primary and secondary education and health to all the people is the duty of the state. In this respect, it is my view that despite lack of resources and inadequate facilities, common people rely on government schools and hospitals for their health and education needs and even in the present deplorable conditions some consolation is received. The perception and thought process that governments be absolved from primary health and education is to be removed. The state has to be the biggest player in primary health and education.

The discussion in the aforesaid paragraph reveals that our problems on the expenditure side need more discussion and policy decisions. Like an ordinary household we should learn to live reasonably, as far as possible in our limited resources. It is anticipated that a fruitful debate at the national level on these subjects be held as I have provided a baseline figure for further discussion on the matter.

====================================================================
Pakistan Budget1                                           2021-2022
====================================================================
Receipts:
--------------------------------------------------------------------
Tax Receipts                                 6250
Non Tax receipts                             2500
                                             8750
Others                                        125
Total Receipts                                                  8875
--------------------------------------------------------------------
Expenses:
--------------------------------------------------------------------
Interest                                     3060
Pension                                       460
Defence                                      1370
Subsidies & Grants                           1743
Health Direct                                 650
Education                                     900
Running Governments                          30002            11,183
Direct shortfall on current account                           (2308)
====================================================================

Copyright Business Recorder, 2021

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