Budgeting on hope

18 Jun 2020

Email

The writer is a member of staff.
The writer is a member of staff.

THERE are two problems when discussing the budget and the attendant Economic Survey this year. First is that there is not much of a budget to discuss. At the heart of every budget (in Pakistan anyway) is a revenue target, along with a plan on how the government intends to pursue this target. This decides the size of the resource envelope the government has to play with, and although many times they work backwards by first fixing expenditures to see what sort of revenue and borrowing targets they will need to meet costs, ultimately the revenue plan places hard binding constraints on what they can credibly allocate.

This year there is literally no revenue plan. No explanation on how the trillion rupees of additional revenue will be collected. First consider that the net federal revenues, meaning the amount left with the federal government after transfers to the provinces have been made as per the National Finance Commission award, is Rs3.7tr and expenditures on debt servicing and defence (the two largest expenditure heads) is Rs4.235tr. Meaning the states runs out of money before it is even done paying its creditors and the armed forces, so never mind development, salaries and pensions, subsidies or anything else.

This year they dispensed with the trouble of showing how they will meet their target altogether. In FBR revenues they have announced an incremental target of more than Rs1tr (compared to the thrice downwardly revised target of last year), but one searches in vain for a clue as to how they intend to meet this. News reports citing unnamed sources tell us that the finance adviser told the cabinet that the target will be met by resort to measures like “petroleum development levy, profits of the State Bank of Pakistan, privatisation of at least three state-owned enterprises and further expenditure cuts”.

The night of the budget Hafeez Shaikh appeared on TV and said that Covid-19 and the uncertainty surrounding the question of further lockdowns before the year lets out mean making plans is not possible. Next morning he repeated this explanation in the post-budget press conference. This basically means we are now in make-it-up-as-you-go territory.

This year there is literally no revenue plan. No explanation on how the trillion rupees of additional revenue will be collected.

The second problem in discussing this year’s budget, and it pains me to say this, is that economic discourse in this country (which was never all that high to start off with) has been degraded down to rank silliness under this government. This sounds harsh, but let me explain.

One of the silliest things one can do when discussing economic matters is throw indicators at each other to score points. ‘Growth rates in our time were higher than they are in your time’, for example. Or, ‘we brought in more foreign exchange than you’. Or ‘debt went up under your tenure’. And so on.

This is silly because in economic matters the effects of decisions made today can take a while to materialise. For example, the NFC award that devolved large parts of federal revenues only began to bite at the centre a few years later, as the size of the provincial shares increased every year rather than in one go. It took many years before the vilification of the NFC award and the 18th Amendment began as a campaign, something Imran Khan has jumped on to now as well after having sung the praises of the 18th Amendment in the past.

Growth that comes quickly fizzles out just as quickly. One government may well have brought in more foreign exchange than the other, but if this was borrowed money, or if it was accompanied by a surging trade deficit, it would mean very little. This is what happened in the Musharraf and the last Nawaz Sharif governments — rapid growth spurt driven by low interest rates, high public spending, foreign money pouring in whether via global aid for ‘war on terror’ cooperation or under CPEC, fixed exchange rates. Both those growth spurts gave us large deficits that eventually swamped the growth process itself, necessitating a painful adjustment.

This government has made it the norm to not only hurl indicators around, but to also change the goal posts regularly. For years, Imran Khan loudly said that the governments of the PML-N and the PPP (he routinely excludes the Musharraf regime, as if Pakistan’s history began in 2008) borrowed excessively, even going so far as to launch an investigation into ‘what happened to all that borrowed money’.

Then his own government borrows more in two years than these governments did in 10, and has little to nothing to show for it, and suddenly we are now told that there is good borrowing and bad borrowing. Good borrowing, it seems, is the one these people do. Bad borrowing is what others did.

But then they argue that they had to borrow to deal with the mess left behind by the predecessors. Well guess what? The predecessors had to borrow for exactly the same reason, as well as to invest in infrastructure. Then they argue that in the ongoing fiscal year, the profile of domestic debt has shifted from short to longer tenors. Sure, yes, it has, but this is only because banks moved to lock in the high interest rates once it became clear they had peaked. No big achievement. In fact, it just means debt contracted during this time will be serviced at the elevated interest rates of 2019 for the next 10 years.

It takes a fair amount of rhetorical kung fu for them to explain how their policies are any ­different, and why deteriorating indicators in their two years are in fact good news. ‘Things will get worse before they get better’ they argue. Where have we heard that line before? Meanwhile debt servicing as a proportion of revenue was 40 per cent in 2015, and came down to 37pc by 2018. It is 62pc today, and we’re making up the revenue plan as we go along. All that we can do now is to hope for the best.

The writer is a member of staff.

khurram.husain@gmail.com

Twitter: @khurramhusain

Published in Dawn, June 18th, 2020