Three-year roadmap for economy

[Neo]

Three-year roadmap for economy

EDITORIAL (June 09 2010): For the first time ever, the Finance Division prepared a three-year medium-term budget estimates for service delivery covering a period from 2010 to 2013.

This was defined by the International Monetary Fund (IMF) in a 2007 publication, titled "Manual on Fiscal Transparency" as follows: "a framework for integrating fiscal policy and budgeting over the medium-term by linking a system of aggregate fiscal forecasting to a disciplined process of maintaining detailed medium-term budget estimates by ministries reflecting existing government policies. Forward estimates of expenditures become the basis of budget negotiations in the years following the budget and the forward estimates are reconciled with final outcomes in the fiscal outcome reports". The objective of this exercise, therefore, is to ensure fiscal responsibility.

A look at Pakistan's version of the medium-term budget estimates reveals a major shortcoming: aggregate fiscal forecasting has not been undertaken or in other words, no attempt has been made to assess the total taxes that are likely to be collected to fund the demands of ministries to enable them to meet their objectives for 2011-12 or 2012-13.

The major weakness in our budgets, so acknowledged by all four finance ministers appointed by the PPP-led government during its two years in power, is the abysmally low tax-to-GDP ratio and the need to end tax exemptions for the rich and the influential to reduce dependence on domestic and external borrowing. In other words, it would have been appropriate for the government to lay down the basics of its fiscal reform strategy for the next three years in this document - a strategy that could have also included the rationale behind the replacement of GST with VAT from 1 October 2010, as noted in the Finance Minister's budget speech and the pros and cons, if any, of this proposal.

A second deficiency is that the document also details objectives of those ministries for the next three years that, if the National Finance Commission award is to be implemented, would become provincial responsibilities. Thus details are provided of the Ministry of Education, Ministry of Health and Ministry of Environment, amongst others, that are to become provincial subjects. These need a revisit and it is hoped that the provincial governments would be more specific in their budgets with respect to their strategy/vision to ensure that everyone has access to basic social sectors.

And finally the third weakness of the medium-term budget estimate is the impossibility of achieving some of the stipulated objectives within the three-year period as targets are simply too ambitious.

Perhaps targets that most challenge credibility are the following: (i) Prime Minister's Inspection Commission that would improve transparency in government business, with an outlay of 34.68 million rupees in 2010-11, 37.1 million rupees in 2011-12 and 40 million rupees in 2012-13; (ii) National Accountability Bureau, to eliminate corruption at all levels and ensure accountability in public sectors, would undertake this monumental task at a cost of 581.7 million rupees in 2010-11, 667 million rupees in 2011-12 and 714 million in 2012-13; and (iii) National Security Council to consult and recommend on matters of national security, including sovereignty, integrity, defence, and security of the state and crisis management in general, to receive 8.5 million rupees this year but, thenceforth, this would not require any further funds for the next two years.

The purpose of drafting a medium-term strategy is to clearly identify a set of realistic priorities based on a credible assessment of the actual resources required for achieving these priorities, otherwise it's simply a waste of paper on which it is printed. One hopes that the shortcomings, this year, are sourced to teething problems and that the quality of this document would improve dramatically next year.

Business Recorder [Pakistan's First Financial Daily]