In view of the chronic resource constraint one does not expect the size of the next year’s budget to show any significant expansion over the current year’s which was around Rs752 billion.

Still, the fiscal space that would be created by a significant reduction in the allocation for debt servicing due to the generous debt rescheduling by the Paris Club members in December 2002 the finance ministry would perhaps be in a position to enhance the allocations for development and also maintain it during the course of the year.

In the current year the development budget was kept at Rs130 billion but in actual fact the total expenditure did not exceed even Rs100 billion. Next year the allocation for Annual Development Plan is expected to be in the range of Rs150 billion. But then the revenue situation on the one hand and the IMF condition that the budgetary deficit should not exceed 4 per cent of the GDP on the other is likely to make it impossible for the umpteenth year to achieve the full budgetary target earmarked for the public sector development programme(PSDP).

The total tax revenue target for the current year was Rs457.7 billion against the previous year’s collection of Rs392 billion. The target was revised downwards to Rs444 billion by the end of the first quarter. The end of the second quarter saw it being brought down further to Rs429 billion. And by the end of the third quarter the target was refixed at Rs414 billion. But as the end of the fourth quarter neared the CBR started talking about a further downward revision in the target by about Rs7 billion. However, the year is likely to end with the CBR collecting no more than perhaps Rs392 billion, the same amount it had collected last year or perhaps even less than that. The government has already taxed almost everything one can think of. And in many cases the rates of taxes are so high that any more escalation in these rates would only impact adversely on the already declining consumption rates which need to be kept at least at a level where investments even at current levels do not become uneconomic. And it has also been seen that whenever the tax rates have gone beyond a point, the resultant increase in the rate of evasion had made the measure highly counterproductive.

According to the latest figures available, the CBR has by the end of last month collected Rs342 billion. This would mean that in the current month it is faced with the impossible task of collecting as much as Rs50 billion to even come up to the level of last year’s achievement. In the last month of the last fiscal year, the CBR could collect no more than Rs50 billion and this year since the recession has deepened further it would be next to impossible for the CBR to collect even this much in the last month. In the month of May, 2002 the collection was no more than Rs36 billion.

Therefore, it is believed that by the year end the total collection would perhaps fall short of even the last year’s collection by at least Rs5 billion. In the first 11 months the CBR collected Rs146 billion in the shape of sales tax, Rs118 billion in income tax, Rs41 billion in excise duty and Rs38 billion in customs duty. The CBR is facing problems in achieving the collection target for the year mainly, as the officials put it, because of sharp decline during the year in the foreign trade, appreciation of the exchange rate, increases in the POL prices and overall slowdown in the economy. Imports are said to have gone down because of, among other reasons, the reluctance of importers to commit themselves to long term deals before the proposed reduction in the customs duties in the next budget.

Independent economic experts believe that the government should present a budget for the next year with the aim to revive the economy on a war footing. This they said it could do by allocating more generously for the PSDP and adhering to the budgeted promises on this score during the course of the year. However, they said without generating the resources needed to finance the PSDP, this would not be possible. So, it would seem we are faced with the chick and the egg situation. In order to get out of this impossible situation the experts said the budget makers could do with a little bit of deficit financing in the next budget on the one hand and a forceful plugging of the leakages in the CBR collection system. According to one unscientific study the government is losing at least about Rs100 billion annually because of corruption in the CBR.

Instead of helping the government to keep its focus on this leakage, the high-ups in the CBR sold to the military government very early in the day the idea of surveys which they said would increase collection by as much as Rs300 billion annually and the President actually announced in one of his earlier press conferences that by the end of the second year the CBR as a result would be collecting as much as Rs. 600 billion annually in revenues. Not only this did not happen, but in actual fact by the end of the second year we see the CBR collecting even less than what it had collected in the previous year. The finance ministry which is being headed by people having no idea about how to manage the finances of a country also went along with this fiction and it appears to be still awaiting the doubling of the revenue incomes while continuing to adhere strictly to the IMF prescription of keeping a tight leash on deficit financing.

Independent economists believe that it was now time that the CBR was completely overhauled and all the loopholes in it plugged without much loss of time. The IMF should also be asked why all those reforms which it had introduced in the CBR over the last several years have so far failed to bear any fruit. These experts said that without plugging the leakages, the government simply cannot collect the needed resources for investing on the PSDP of a reasonably adequate size without resorting to massive deficit financing. And without such an investment, there is no way that the economy would get revived in a hurry. So, while the government needs to negotiate with the IMF a genuine wavier for a reasonable amount of deficit financing meant only for PSDP, it is also duty bound to plug the leakages in the CBR at the earliest so that the next year’s budget makes a real contribution to the overall economic revival.