THE fifth consecutive budget of this government, to be presented to parliament later today, is more than likely to be yet another timid fiscal policy statement.

Not unlike the previous three budgets under the current finance minister that have been hobbled by serious policy drift and reform inertia, this year’s budget speech will also be a statement of intent to achieve lofty goals that have completely eluded this government for the past several years, including reforming the power sector and containing the fiscal deficit.

Given electoral imperatives, the fiscal year 2012-13 is very plausibly going to be another year of abject failure on most budgetary counts, more so than in the previous three years, with an unreformed power sector continuing to guzzle over Rs1bn a day in resources and the fiscal deficit hovering around seven per cent of GDP.

In fact, this is the first of the many ‘innocent’ frauds the budgetary statement will likely contain — committing to a fiscal deficit target that will in all likelihood be around two per cent of GDP higher 12 months later. By employing overly optimistic assumptions and dubious accounting for yet another year, the finance minister will commit in parliament to a fiscal deficit target that he knows he will not be able to achieve. (In fact, even the reported fiscal deficit for the outgoing year will be misrepresented, as the power sector subsidy to the tune of 1.85 per cent of GDP will be removed from the budget deficit calculation in order to report a lower figure).

For the past two years in a row, the variance of the actual fiscal deficit over what was budgeted at the start of the year has been 40 per cent each year. Since 2009-10, measured in absolute terms, the actual outturn with regard to the deficit has been cumulatively Rs907bn over and above the amount budgeted at the start of the year — a whopping variance of five per cent of GDP in three years.

The other area where the finance minister’s speech is very likely to be economical with the truth is in characterising the election-related freebies in the budget as ‘people-friendly’ or ‘awam dost’. Untargeted subsidies, tax exemptions for the powerful, undeserving salary hikes for well-paid bureaucrats and members of the armed forces, and allocations for ‘pork barrel’ projects in the Public Sector Development Programme (PSDP) to buy the loyalties of increasingly affluent parliamentarians are hardly pro-poor measures — especially when they will be paid for not by roping delinquent sectors and individuals into the tax net but by borrowing from the central bank.

That the effects of the resulting inflation, tax and job-creation prospects by a walking-wounded economy will resonate with the populace far beyond the election cycle, should be enough reason for a supposedly ‘technocratic’ finance minister to desist from traversing this path. That he will not is unfortunate proof that his credentials as a competent technocrat or reformist are not withstanding scrutiny or any objective test of performance.

Under his watch, the reintroduction of tax amnesty schemes, a rejuvenated (and now flourishing) SRO culture and the bizarre exemption of stock market investment from tax scrutiny till 2014 have put paid to any notion of tax “reform” being implemented by this government.

In fact, it is in the area of taxes where the budget will contain its third — and traditional — misrepresentation: in the projection of revenues. Once again, according to media reports, a substantial increase in tax revenues is projected to come from “administrative improvements” within the Federal Board of Revenue (FBR).

While this potential avenue has become a regular feature of the FBR’s revenue assessment for the upcoming year, no one has been able to identify, much less quantify, what these improvements have been in the past three years, and how much they have yielded — if anything at all. In fact, the reality on the ground, judging by reports from the field, is that the FBR has become more corrupt and more predatory in its approach over the past three years. And yet, in the triumph of hope over experience, these elusive improvements are relied upon to deliver next year’s target.

The other usual suspects that will be employed to buttress the revenue side on paper are over-estimated Coalition Support Fund receipts, 3G license fees and, possibly, the balance payment by Etisalat for the PTCL acquisition (assuming it is recorded above-the-line).

On the expenditure side, the chronic under-estimation of government spending on untargeted subsidies is likely to continue, with large financial bailouts of corruption-infested public sector entities  another potential contributor to the eventual over-shooting of the budgetary spending target. On the flip side, governments have traditionally over-stated spending on the social sector, as reported each year to parliament, by including spending on security and law and order under poverty-alleviation expenditure.

Despite the severe budgetary constraints, and against the demands of prudent financial management, the size of the PSDP has been enhanced, with bloated allocations for “special” packages for Multan, Larkana and Karachi. The efficacy of ‘pork barrel’ projects in winning elections has been cast in serious doubt both by Pakistan’s own recent electoral history (when Shaukat Aziz tried and failed) as well as by international experience.

Despite these lacuna and flaws, a willing coalition of allies will help the PPP-led government navigate yet another underwhelming budget through a comatose parliament. That this budget will be remembered not for its innovation or commitment to reform, but only for being the fifth of an elected government (and perhaps for the magnitude of its truth deficit), is a sorry indictment.

The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.

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