Current expenditure is expected to receive a boost in election year''s budget 2017-18 with a higher outlay on subsidies for the power sector to enable the poorly performing Gencos to minimise load shedding and a minimum of Rs 50 million is likely to be allocated to each PML-N parliamentarian for development work in their constituencies. Gencos with an operating capacity of less than 29 percent would be brought on board through massive subsidies to minimize load shedding.
The exact amount of subsidy would depend on the international price of oil however it would be at least double what has been earmarked for the current year at Rs 95.4 billion for Wapda/Pepco and Rs 22.6 billion for K-Electric. Subsidies to the power sector would thus amount to Rs 250 billion at least if the government is to achieve its commitment to have 2 hour load shedding per day in cities and double that in rural areas - a key commitment that if met would give the Sharif administration a decisive electoral victory in 2018.
Sources on condition of anonymity told Business Recorder that the government may opt to inject a subsidy of Rs 8-10 billion monthly to run the oil guzzler Gencos like Jamshoro to make full use of installed capacity. Budget in brief 2012-13, an election year, shows that higher spending on subsidies for the power sector dominated the current expenditure and accounted for Rs 250 billion under this account.
The PML-N has 126 parliamentarians, with 34 women and 6 minority seats. If only Rs 50 million is extended for development work in their constituencies then a total of Rs 8.3 billion additional funding would be required. Sources revealed to this newspaper that the Cabinet has already approved Prime Minister''s Taraqiati Programme 2016-18 designed to undertake community based development schemes for various sectors. Funds from between Rs 2.5 million to Rs 30 million for each scheme would be disbursed on the request of the politicians of the ruling party. These schemes would be around Rs 7 billion each and reflect a traditional method to gain votes that is employed by the party in power during an election year.
Overall current expenditure is therefore likely to increase by 12 percent in election year, a conservative estimate, based on the fact that current expenditure rose by over 11 percent in the last election year 2012-13: from Rs 2631 billion for the previous fiscal year to Rs 2907 billion in the election year.
Allocation on current expenditure is therefore forecast to be between Rs 4310 to Rs 4350 billion for election year as opposed to Rs 3843 billion estimated in the budget for the ongoing fiscal year. The Dar a led Finance Ministry has on average increased salaries/pensions/others, under the head running of civil government, by on average 10 percent each year - a policy that has been fully supported by the entire Opposition. This would imply an increase of Rs 20 billion under this head next year. The UK Labour government negotiated a salary freeze during periods of high deficits terming it incomes policy. However the Sharif administration is unlikely to support this especially during an election year.
Informed sources however told Business Recorder that the increase in federal Public Sector Development Programme maybe higher by Rs 100-125 billion for to allow development schemes not only in the constituencies of the members of ruling party but also for mega projects supported by the Prime Minister.
Defence outlay is unlikely to be curtailed especially with the ongoing operation Raddul Fasaad and as in the past it is likely that the civilian government would allocate and release the amount requested by the defence forces. On average it has risen by around 10 percent and this no doubt would be allocated.
Federal Board of Revenue (FBR) has been unable to achieve the overambitious budgeted revenue collection target during the past two years and it is likely that this target would be just as ambitious in next year''s budget and would be missed in election year as well. However informed sources reckon that the government is unlikely to impose higher taxes on productive sectors during an election year and would also resist the temptation to raise indirect taxes say on mobile sims and other consumer items but would most likely widen the gap between filer and non filer rates; however it is unlikely that the FBR would proactively proceed against those influentials who refuse to file returns.
The business community, one of the major supporters of the PML-N in the past has in recent years expressed annoyance at taxation measures and it is likely that yet another amnesty scheme will be announced, the third in less than five years, and taxes on the corporate sector reduced.
Thus with expenditure rising substantially during the election year and the revenue base narrow and heavily reliant on fuel taxes as well as on other indirect taxes borrowing will rise dramatically. And with programme lending (budget support) having significantly contracted after the end of the International Monetary Fund Programme in September 2016 - from Rs 324.6 billion in 2015-16 to 133.7 billion in the current year - it is highly likely that the Finance Minister would enhance his reliance on very short term commercial borrowing - at very high rates of return, and issuance of bonds/sukuk internationally again at rates well above the market rate if past precedence is anything to go by.
Whoever wins the next elections would therefore have to contend with high rate of debt service payments in the short term. Or from an allocation of 40 percent of current expenditure in 2016-17 it may well rise to 45 percent next year in real terms as opposed to what would be budgeted.
But the election year budget itself is unlikely to present these stark realities. Like in the past the Dar-led Finance Ministry would show a low deficit by overstating revenue and understating expenditure and borrowing at whatever cost - domestically and from abroad.
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