Budgetary projections tend to be way off the mark

Will we see the same thing happening to the projections contained
in the budget for fiscal 2008-09 announced on June 11?

By Kaleem Omar

Jenkinson’s Law says: “Budgets don’t work.” So what chance is there that the budget for fiscal year 2008-09 announced on June 11 by Finance Minister Naveed Qamar will balance out neatly at the end of the day, with all the revenue and expenditure projections as well as all the economic targets being spot on? Very little chance, I’d say.

Budget-makers have always overestimated revenue and underestimated expenditure. This has happened with monotonous regularity year after year, but our budget-makers never seem to learn. Come budget-making time, and out comes the same tired old fourmula: overestimate revenue and underestimate expenditure, necessitating resort to what were once euphemistically known as “mini budgets.”

The expression is no longer much in vogue, but the mandated utility tariff hikes and increases in other imposts, including POL prices, that charaterised mini budgets continue to this day and are used to meet revenue shortfalls during the course of every fiscal year.

But what is it about our budget-makers? Why do they fall into the same trap over and over again? Could it be that what is at work here is another law that says: a little money is good but large sums foul up the works?

In other words, does the thought of all those billions (so many billions for poverty alleviation, so many for debt servicing, so many for grants to provinces, so many for the Public Sector Development Programme, etc.) cloud the vision of our budget-makers and lead them to think that 2 plus 2 somehow equals 22 billion rupees when it comes to projecting revenue receipts but only 4 billion rupees when it comes to projecting expenditure?

Whatever the case, there’s no denying that the budget genie has been with us for years and keeps turning up like the proverbial bad penny. We are likely to see the same bad penny turning up yet again during the course of fiscal 2008-09. We probably won’t know for sure, however, until we are into the third quarter of fiscal 2008-09, which is usually the quarter when it dawns on our budget-makers that their projections and targets have gone wrong yet again.

Budget-makers love making optimistic assumptions about the quantum of revenue that is expected to flow into government coffers. Such assumptions are like dreaded typographical errors that are always found only after the final copy of the book has been bound and mailed.

Negative slack tends to increase and the only alternative to perseverance is failure. But our budget-makers seem to think that it is possible to exceed the limits of possibility. They should know, however, that creativity varies inversely with the number of cooks involved with the broth.

One says this because the number of government officials involved in making the budget runs into hundreds, if not into thousands. It’s not just the finance ministry that is involved in this exercise. Every ministry, every government department and every public sector corporation tends to get in on the act in one way or another.

Wags say that the rumbling sound one hears in the Islamabad secretariat at budget-making time is not thunder over the Margalla Hills but the sound of hundreds of bureaucrats rushing around in the corridors of power to get their two bits worth of wisdom into the budget.

When budget policy fails, and fail it invariably does, our budget-makers should try thinking.

Budget-makers, these days, are very fond of talking about market forces. Indeed, it could be said that market forces are their sine qua no. But those who go on and on about market forces should know that the existence of a market does not insure the existence of a customer.

So if we want to increase our exports from the present level of about $ 17 billion a year, we will first have to find customers for the additional goods we seek to export. It’s a simple enough proposition, yet one that still doesn’t seem to have registered in the minds of our budget-makers.

Of course, even finding potential customers for higher volumes of Pakistani export goods is not going to be enough. We will also have to increase the range of goods we produce for export. After all, there is a limit to the quantity of onions or hides and skins we can export. By the same token, we will also have to take concrete steps to urgently revive our hundreds of sick industries, especially those units that could produce export goods.

We’ve been hearing talk about reviving sick industries for years, going back to the days of the early 1980s’ Beg Committee on the Revival of Sick Industries. For all the talk, though, the number of sick industries has increased over the years, not decreased. Now, we’re hearing the same kind of talk again. But whether these sick industries will actually be revived, and whether exports will actually go up in the year ahead, remains an open question.

Imports can easily go up any amount, especially in this era of soaring imported oil prices, which have quadrupled over the last five years and have doubled to about $ 135 a barrel in the last one year.

Increasing exports, however, is another matter. Some few years ago, there was much talk in Islamabad about Pakistan’s external trade “staging a ‘V-Shaped’ recovery,” with “both exports and imports exhibiting a strong rebound from the significant downturn of the previous year,” as the finance ministry’s economic survey for that particular year put it.

But just what, pray tell, is a “V-Shaped” recovery? One has heard of slow recoveries, fast recoveries, export-led recoveries and many other types of recoveries. But a “V-Shaped” recovery? What breed of recovery is that?

Then, of course, there is the question of Pakistan’s foreign debt, which has gone up from $ 36 billion in 1999 to a hefty $ 47 billion today. That’s nearly three times our current annual export earnings. Where is the money going to come from to pay down this debt? Not from petty cash, surely?

It is, of course, theoretically possible that the money could come from some surprising source. I wouldn’t bank on it, however. The world may be full of surprises, but very few of them are pleasant.

It goes without saying (but I’ll say it anyway) that we can’t come to grips with the issue merely by talking about it. As the American poet Robert Frost said, “The only way to learn to play tennis is to play it” – not talk about playing it, not debate the pros and cons of playing it, but actually going ahead and playing it.

Not addressing the problem is not going to make it go away. Nor will it go away by selling off a few state-owned corporations to foreign buyers and using the money to pay off foreign debt, contrary to what successive governments have been saying in recent years.

Talk is cheap, especially in the corridors of the bureaucracy. That’s why it is said that of all possible bureaucratic reactions to any given national agenda item, the action that will occur is the one that will liberate the greatest amount of hot air.

As for all the pious hopes usually expressed in budget speeches about cutting expenditure and increasing revenue, here is what C. Northcoate Parkinson (of Parkinson’s Law fame) had to say on the subject: “Expenditures rise to meet income.”

So if the government actually succeeds in increasing revenue receipts, as it claims it will be able to, the chances are better than good that expenditure, too, will rise – to what stratospheric heights only an outfit like the Space and Upper Atmosphere Research Commission may know!

This aside, there has long been a tendency in Pakistani officialdom to just let things roll along, from one year to the next, from one budget to another – interrupted only by talk, talk, talk, and more long-winded and jargon-ridden talk, talk, talk.

In the context of long-windedness, I’m reminded of Professor Gordon’s Rule of Evolving Bryographic Systems. It goes something like this: “While bryographic plants are typically encountered in sub-strata of earthy or mineral matter in concreted state, discrete sub-strata elements occasionally display a roughly spherical configuration which, in the presence of suitable gravitational and other effects, lends itself to combine translatory and rotational motion. One notices in such cases an absence of the otherwise typical accretion of bryophyta. We therefore conclude (wait for it) that a rolling stone gathers no moss.”

Given all this, it’s not surprising that Jenkinson said budgets don’t work.