Should the government make Budget 2018-19?

• Best left to the next setup

The advisor to prime minister on finance, Dr Miftah Ismail, has announced that the government would present the Budget 2018-19 to the National Assembly on 27^th April 2018. The five-year term of the assembly would expire on 31 May, since it took oath on 1^st June 2013.

Is there a legal or constitutional obligation on the government to present, and for the assembly to approve, a budget for a year that falls outside its constitutional tenure? Is it wise to do so? The answer to both questions would seem to be in the negative.

It is important to understand what it is that is presented by the federal government and approved by the assembly as thebudget. There are basically two parts to this exercise. First, there is an annual budget statement (ABS) under Article-80, which gives: (a) estimates of receipts and expenditures (with a break-down between charged and voted expenditures), (b) detailed demand for grants voted by the assembly, under Article-82, and (c) a schedule of authenticated expenditures, under Article-83, signed by the prime minister and laid in the Assembly. Second, the Assembly has to pass the Finance or Money Bill, under Article-73. This contains the tax proposals of the government, which entail amendments in various laws. This part has implications normally going beyond the immediate fiscal year.

As we noted at the outset, the term of the assembly would expire and on the 1^st of June an interim government is expected to be in place. Since the assembly would be completing its term on 31^st May, under Article-224 elections are required to be held within sixty days (i.e. by 30^th July) and results to be announced by 15^th July. The interim government can authorise expenditures during the month of June from an already approved budget for the current fiscal year. It is the month of July where the question of approved expenditures will arise.

The framers of the constitution had envisaged such a possibility and have therefore provided a way out of this difficulty. Article-86 of the constitution reads as follows:  “Notwithstanding anything contained in the foregoing provisions relating to financial matters, at any time when the National Assembly stands dissolved, the Federal Government may authorise expenditure from the Federal Consolidated Fund in respect of the estimated expenditure for a period not exceeding four months in any financial year, pending completion of the procedure prescribed in Article 82 for the voting of grants and the authentication of the schedule of authorised expenditure in accordance with the provisions of Article 83 in relation to the expenditure.”

There is a lag of at least two months in the availability of data on key economic variables, particularly the production data necessary to estimate GDP

Thus, there is no bar on the authority of the caretaker government to authorise expenditures for 120 days (i.e. up to October 28, 2019) when the assembly stands dissolved. Technically speaking, if this government does not give the budget for the next year, it would neither violate a legal provision nor leave a vacuum for the interim government.

In fact, there is a persuasive argument that it would be better to give the opportunity of formulating the budget to a government, which would be returning with a fresh mandate from the people, rather than to limit its choices. More than the budget itself, it is the finance bill that would be of critical significance. The proposals approved by the assembly would hardly be implemented in its tenure. Yet it may preempt many choices for the new government, for if it alters those proposals within a couple of months, it would be injurious to some groups. Indeed, this lingering uncertainty about the fate of approved measures would make even the beneficiaries wary of their durability and, therefore, may not elicit from them the desired responses. This would be particularly true if the tax proposals planned by the government include the much talked about tax amnesty scheme. Only a new assembly will have the true mandate to take as far-reaching a decision as an amnesty. A government, and an assembly, days before the end of their term, are ill suited for this job.

The mechanics of budget making also warrant that it should be left to the next elected government. Traditionally, the budget is presented in the first or second week of June and approved by the assembly before the close of the month. Accordingly, the proposal to present the budget on 27^th April — advancing the date by at least five weeks – would not only be logistically challenging but would affect the quality of the budget.

There are three important components in assessing the state of economy. First, the budgetary outcomes of the current year, which is the primary input in preparing the estimates for the next budget. These outcomes are known as “revised estimates” and are based on actual outcome for ten months (Jul-Apr). The proposed date would make even the nine months actuals difficult to compile let alone the usual ten months. The reliability of revised estimates would, therefore, be subject to a greater margin of error.

The second ingredient is provided by the meeting of the national accounts committee (NAC), which is responsible for compiling the data on national accounts (GDP, investments, savings, etc.). Historically, it meets in early May to announce the revised estimates of the growth rate for the year ending June 30, which is the single most important indicator of economic performance during the year. Advancing the budget date would require advancing the NAC meeting. But it is not just the issue of holding the meeting five weeks earlier, it is the availability of information to base the estimate of annual GDP. The NAC uses nine-month data (Jul-Mar) for GDP growth rate (called revised estimate). There is a lag of at least two months in the availability of data on key economic variables, particularly the production data necessary to estimate GDP. The exercise may face both inadequate coverage as well as haste in compilation, which may affect the credibility of the estimates.

The third document is the Economic Survey which is normally released a day before the budget with considerable fanfare, simply because it is the official account of economic developments during the year. The survey is a comprehensive assessment of performance in all economic and social sectors which forms the basis of policy formulation for the next budget. It is also based on nine-month data (Jul-Mar). The annual plan is prepared on the basis of information contained in the survey, which in turn forms the basis for the public sector development program (PSDP).

Rushing through these important requirements would mean a haphazard exercise that could lead to embarrassing mistakes or use of poor quality and inadequate data. It thus seems more appropriate to leave it to the new government and assembly to present and approve a fresh budget, rather than going through an unnecessary half-baked exercise at a time when the government’s attention is needed on issues of far greater importance and urgency.