Almost every government tries to garner votes by manipulating the budget in an election year. Believing in this pattern, a guesstimate has been made by this newspaper to speculate about the likely strategy to be adopted by the present government during financial year 2017-18.
The authors of the report believe that Gencos, with an operating capacity of less than 29 percent, would be brought on board to reduce the load shedding to 2 hours in cities and 4 hours in villages by increasing the power sector subsidies by at least Rs 250 billion. In addition, a minimum of Rs 50 million was likely to be allocated to please each PML (N) parliamentarian for development work in his or her constituency. Since PML (N) has 126 parliamentarians, with 34 women and 6 minority seats, Rs 8.3 billion would be extended for development work in their constituencies.
The Cabinet has already approved Prime Minister’s Taraqiati Programme 2016-18 designed to undertake community-based development schemes for various sectors. These schemes would cost Rs 7 billion each. Overall, current expenditures are projected to increase from Rs 3,843 billion in the budget for the ongoing year to between Rs 4,310 billion and Rs 4,350 billion in the election year. Finance Ministry has on average increased the salaries/pensions by about 10 percent each year and this would imply an increase of Rs 20 billion under this head next year.
The Federal Public Sector Development Programme (PSDP) may be higher by Rs 100-125 billion to allow development schemes not only in the constituencies of the members of the ruling party but also for mega projects supported by the PM. Defence outlay may, as usual, be increased by about 10 percent, especially for Raddul Fasaad.
On the revenue side, the government would not be able to achieve the ambitious fiscal targets fixed for the year. The government is unlikely to impose higher taxes on productive sectors of the economy during an election year and would resist the temptation to increase indirect taxes on consumer items.
The gap between tax filers and non-filers may be increased but it is unlikely that the Federal Board of Revenue (FBR) would proactively proceed against those who are influential and refuse to file returns. Since business community is PML (N)’s favourite, another amnesty scheme seems to be on the cards. With a narrow revenue base and a rise in expenditures, the Finance Minister would enhance his reliance on short-term commercial borrowings at high interest rates.
As such, whoever wins the next election would have to contend with mounting debt and high rate of debt servicing. However, in line with the past practice, the Dar-led Finance Ministry would show a lower deficit by overstating revenues and understating expenditures in budget documents.
The projections for the budget for FY18 made by this newspaper may not turn out to be entirely true but reflect roughly the usual policy strategy adopted by various governments in election years. It seems that the authors of the report have made the right conjectures by reading the minds of top echelons of the government. To start with, the present government had promised to bring load shedding to an end or at least reduce it drastically by the next elections in 2018 and if the promise was not met by the stipulated date, the government would lose its credibility among voters.
As such, every avenue, including the use of oil guzzlers and poorly performing Gencos would be employed to keep this commitment. Although estimates for subsidies for this effort have been made in the report, the exact amount of subsidy would depend on the international oil prices. Another election ploy is the allocation of huge amounts of funds to the party parliamentarians and the announcement of various development schemes wherever the Prime Minister goes to public meetings. Though these allocations are not spent optimally, this practice has become a routine to please the party cadres and the electorate.
The announcement of increases in salaries and pensions every year has also become a kind of habit which is now difficult to avoid, particularly in an election year. It may be mentioned that such routine increases were not made a few years back; nor is it a practice the world over. PSDP, as always, is also likely to soar while the amount of defence expenditures is likely to increase substantially due to the ongoing military operations against terrorists within the country and tensions on borders.
On the other hand, the government cannot be too strict to raise the revenues. Both direct and indirect taxes cannot be increased substantially and the FBR will not be allowed to go after the defaulters, non-filers and influential people to alienate them in an election year. It is also correct that the government may exaggerate the data on revenues and underestimate the expenditures to show a reduced budget deficit at the beginning of the year. The authorities would of course be free to revise the figures after elections are over. It may be mentioned that the government will not be restrained because there is presently no programme with the IMF which could force the country to present reliable estimates and pursue a particular reform agenda. It may be noted, however, that the report is not complete in all respects.
For instance, if the international oil prices increase during the year, the government may not raise the domestic prices accordingly. Circular debt is another huge emerging issue. Another package may have to be announced for some sector.
All of this would have budgetary implications which have not been included in the exercise. Obviously, the results of such a fiscal profligacy would be horrendous for the country. We can only hope that the government is fully aware of the pitfalls of such a policy. It must, therefore, act differently this time for the larger economic interest of the country.