A section of the press has released some salient features of the budget for the forthcoming fiscal year that, according to the latest reports, would be presented on the 3rd of June. The leaked statistics do not contain any specifics with respect to the taxation proposals and therefore the leak itself is unlikely to have any impact on the economy other than create a flurry of analyses by economists and non-economists alike.
The statistics merely indicate the government's revenue target, its expenditure targets with respect to major expenditures - current as well as development - and the fiscal deficit.
Total outlay for the Public Sector Development Programme (PSDP) has been proposed at 280 billion rupees for 2011-12. This amount raises two questions. First, it reflects a massive decrease in allocation from 2008-09 when the PPP-led government's budgetary allocation for the PSDP was 600 billion rupees - an amount that was revised downward to 308 billion rupees. Be that as it may, the 600 billion rupees did indicate the importance placed on this critical sector by a democratically elected government.
In 2009-10, the proposed PSDP budgetary allocation was 646 billion rupees and the revised estimate was 510 billion rupees. In the ongoing fiscal year the federal budgetary allocation was 280 billion rupees which has been slashed by around 90 billion rupees already though the actual figure would be released when next year's budget is announced.
In short, the credibility of the government with respect to meeting its own targets for development expenditure is suspect if past precedent is anything to go by; and one would be compelled to challenge the government on whether the 2011-12 PSDP allocation would not suffer a similar fate. Secondly, the rate of inflation, a bit over 15 percent in the ongoing fiscal year according to government statistics, has not been taken into account reflecting a decline in real terms for the PSDP. This would no doubt have implications for the required allocation for our sadly deficient physical infrastructure sector, notably energy that is held responsible for an output lower than potential and rising unemployment levels.
In contrast current expenditure is to be insulated against the rate of inflation. Defence is expected to receive 495 billion rupees and total security-related expenditures are to receive 835 billion rupees in 2011-12. This rise is around 12 percent for defence and 15 percent for total security-related outlay.
Many would justify this outlay on the basis that it reflects the cost of replacing the recent losses in equipment suffered by the armed forces due to terror attacks and to ensure that attacks on military installations, civilian infrastructure and human targets do not recur.
Whatever the rationale that maybe employed by the government, the fact is that the rise in allocation does not reflect the current mood of the people of this country and is unlikely to appease the country's international donors. The International Monetary Fund's statement in its programme note dated 17 May 2011, explicitly stated that, "The quality of expenditure could be improved by increasing the share of spending on health, education, and infrastructure." Stronger public finances are needed to allow for higher spending on development and poverty reduction, and to increase much-needed social outlays over the medium-term".
Debt servicing, inclusive of servicing foreign and domestic debt as well as repayment of debt as and when it becomes due is estimated for 2011-12 at 786 billion rupees. However, the budget figures for 2010-11 indicate that around 873 billion rupees was budgeted for this item. There are indications that this was reduced through deferral no doubt of domestic debt to 726 billion rupees. Be that as it may, our debt repayments are expected to rise by over 8 percent this year - one reason for the lower proposed outlay for PSDP. The May 17 IMF note stated that "as government debt has increased, debt management needs to be improved".
Fiscal deficit is proposed to be around 912 billion rupees in 2011-12, which contrasts poorly with the 2010-11 budgetary estimates of 685 billion rupees; however the actual deficit attributed to the floods last year was considerably higher at 1.034 trillion rupees. And the IMF note emphasised that continued efforts are needed to reduce the budget deficit to take the pressure off the monetary policy and create space for more credit to the private sector.
While the budget announcement is eagerly awaited in other countries of the world as it determines an individual's disposable income as well as the likelihood of his keeping his job, yet in Pakistan the budget exercise has, over the years, become superfluous to a large extent as it is geared towards appeasing international donors (who three years down the line want action rather than just words reminiscent of what the international community urges us on the war front) with allocations as well as revenue generation proposals drastically changed during the year. Right now our government's focus is to have the stalled IMF Stand-By Arrangement reactivated, which would require a 4 percent or just under budget deficit, the levy of Reformed General Sales Tax, reducing the subsidies as well as undertaking other reforms. These elements would be present in the budget, however one would have to wait and see the actual implementation of the budget by the end of year.