Editorial: Rising budget deficit


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The consolidated federal and provincial budgetary figures for 2016-17 reveal the highest fiscal deficit during the tenure of the PML-N government attributed to two factors: one, the 2018 scheduled elections prompted the incumbent administration to raise expenditure while revenue, typically overstated in budgets, failed to meet its target resulting in a higher than budgeted deficit which, incidentally, has been the usual practice during the tenure of previous administrations as well; and two, the failure of provinces to generate the surplus identified by the federal government which accounts for a shortfall of 163 billion rupees from the budgeted amount of 339 billion rupees.

The budget deficit, so revealed these latest released accounts, rose to 5.8 percent instead of the 4.2 percent of Gross Domestic Product (GDP) that is noted in the budget documents for the current fiscal year (2017-18) which was presented to parliament on 26th May 2017. While the fiscal year ends on 30th June and the budget presented a couple of weeks earlier than has been the norm due to the onset of Ramazan yet it is very disturbing that the actual deficit was underestimated by a whopping 1.6 percent six weeks before the end of the fiscal year. Needless to add, such significant underestimation of the deficit for last fiscal year on which projections for the current year are naturally based makes a mockery of the entire budget exercise.

There have been two consistent though major shortcomings with respect to decision-making in the Ministry of Finance during the past four years. First, the emphasis has been on data manipulation to show a performance that is better than ground realities indicate – be it in calculating key macroeconomic indicators or be it in terms of the budget itself notably by overstating revenue collections and understating expenditure, specifically current expenditure. This trend has disabled the ministry from taking informed decisions in a timely manner. And secondly, there is a lack of consultations with other stakeholders, including the provincial finance ministers. The federal finance ministry has consistently shown a disinclination to take provinces along with its policy decisions and this is amply reflected in the failure to negotiate a National Finance Commission Award that has been due since 2015 and is spearheaded by the federal finance minister. While during the Sharif administration, the unmitigated support extended to Ishaq Dar allowed him to ignore all concerns with respect to his data manipulation and flawed policies, yet this has not been in evidence since the Abbasi administration was established on 1st August 2017.

There has been a steady whittling in the power sphere previously enjoyed by incumbent finance minister with many divisions/departments no longer under the administrative control of the Finance Ministry, particularly the Ministry of Statistics and Privatisation Commission; however, this by itself would not resolve the serious issues that face the economy today. His supporters minimise his contribution to the current state of the economy by arguing that overspending is the usual practice in the run-up to the elections, which is certainly true, but there are numerous flawed policies supported or initiated under his watch for the past four years that have led the economy to the current impasse in any case.

There is therefore an urgent need to revisit a lot of these policies as well as flawed data and one would hope that the new administration begins to take decisions premised on more accurate data as well as take advice from economists within its own ranks.