Pakistan Institute of Development Economics


Annual budget: a useless exercise

Publication Year : 2020
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GOVERNMENTS create a lot of waste. Pakistan recently witnessed this in the form of the sugar scandal (courtesy of government subsidies and regulations), a recurrent theme in our economic history. While most readers would be aware of sugar, wheat and other such lobbies, little attention seems to be paid to another major avenue of wasting taxpayer resources: the exercise of presenting annual budgets.It’s a hypothetical accounting exercise, a probable statement of government expenses and income. To gauge the purpose, one will have to go back to 17th-century Britain where Lord Grenville started presenting budgets around 1764; this was merely an attempt to assuage an increasingly worried British population about the health of the government treasury (‘budget’ is derived from ‘bougette’, French term for wallet). Apparently the trick was quite successful since other countries gradually took recourse to it. The subcontinent got its first taste when James Wilson presented India’s first budget in 1869.More than two centuries after its initiation, it remains a hypothetical exercise in numbers, with little or no use. If the aim is to ‘balance’ budgets, then it’s a very poor strategy, a concept that was discarded by the majority of economists long ago. Briefly, imagine what would have happened if governments were worried about balancing budgets rather than fighting Covid-19? Similarly, in our times, austerity economics has rarely worked in favour of economic growth. Hence, there is little need or reason for ‘balancing’ budgets.The numbers may make for a good public show, but are just that: hypothetical numbers. When was the last time, at least in Pakistan’s case, when budgeted numbers matched reality? Last year, the budgeted estimate for total income was Rs5.5 trillion. By this fiscal year’s end, the government would be lucky if it could garner Rs4tr. Such is the complexity of economic operations and the overall uncertainty that one can never be sure of what the economic landscape will look like the next day. In such circumstances, it makes little sense to waste time on this exercise. And for an economy that’s used to SROs, presenting numbers for a whole year seems quite irrelevant.The numbers may make for a good public show, but are just that: hypothetical numbers.The waste that the annual budgeting exercise sets in motion is substantial. From at least October onwards, one of the biggest excuse that public officials find for not addressing public complaints is that they are ‘busy’ preparing budgetary proposals. The irony is not lost on those who have some idea of fund utilisation in public entities. On average, public-sector organisations manage to utilise hardly half of their allotted amounts. But every successive year’s ‘demand’ is more than the previous year’s, with no explanation of why that is the case despite the low utilisation capacity. In aggregate, this leads to a swelling of the estimates, while leaving aside the important issue of institutional capability, capacity and productivity.Even within this low utilisation, the majority of releases take place in the last few months before the new budget, courtesy of the fund ‘surrender’ rule. Departments have to surrender funds which they can’t spend. But the last thing on the minds of departmental bigwigs is to return available funds. In order to surrender as little money as possible, the releases take a steep upward turn in the last few months. Again, there is little in terms of productive ventures that could justify the expense of that amount. Put another way, both the annual budget and surrender rule entice government officials towards adverse behaviour.Aside from officialdom, private-sector rent-seekers, lobbyists, hoarders and profiteers actively await the arrival of the new budget. The contract mafia is one such example. One of the common sites that people are accustomed to in this country relates to what I call the ‘digging season’. As the new budget approaches, we’d see a spike in construction and digging activity. A substantial portion of these digs, however, are in the same place as they were before, and it’s the same equipment that is dug up and placed again in the same spot. It appears in official documents as ‘development’ activity, but there is little chance of knowing whether it is genuine because hardly 15 per cent of public expenditure in a year is auditable (some organisations don’t even allow their audit). In this case, private contractors and public officials collude to make merry financially.Even more damning is the fact that there is no follow-up monitoring or evaluation. Let’s also not forget the usual occurrence of goods of everyday consumption vanishing from markets when the new budget is due. Budgetary exercises provide hoarders a golden opportunity to hoard stuff.Finally, let’s not forget the financial resources spent on the physical printing of budget books that are read by no one. Try to aggregate all of this and we end up with substantial waste. Suffice to say, just like consumers figure in inflation expectations, rent-seekers, lobbyists and profiteers have built-in expectations related to annual budgets since it provides them an opportunity to realise their aims courtesy of government action.Economic statistics related to income and expenditures are nowadays easily, and regularly, available. They are reported per month, per quarter, biannually and annually by the media, the State Bank etc. We don’t need annual budgets for this purpose. Departments should forward their demands to the relevant quarters that should decide releases based on merit and a related criterion. This will get rid of the waste that is set in motion by budgeting exercises.Post Covid-19, both the federal and provincial governments need to come up with brave, innovative ways of dealing with economic difficulties. Getting rid of annual budgeting should be one of those initiatives.