PTI: Imran Khan's delicate stitch!

I have often participated in heated ideological debates on the issue related to the foundational principles on which Pakistan was established and how it should be governed. But why is it when it comes to supporting PTI and its political slogan of 'Naya Pakistan' many of the very same people are seen standing side by side despite their inherently contradictory ideological orientations? What makes these ideological fissures - on which traditional political parties have time and again built their political strategies - appear to be secondary in importance if not disappear altogether? Will such a unity outlive Imran Khan's own life? Or will we see a repeat of post-Jinnah ideological debates where each group attempts to drag the focal personality to its own ideological block without realizing that such an attitude is only leading to increased polarization? 

Unfortunately, the answers are not simple. Every narrative has a life of its own. A certain narrative may continue to live if the competing narrative shares no commonality. There is little incentive for any person supporting these contrasting narratives to concede. Facts, evidences and observations offer little help. Two dots can be connected to form a straight line as well as any other possible shape one can conceive. What scientific yardstick is there to declare one better than the other? More often than not, the apparent internal contradictions in the 'facts, evidences and observations' allow every person to assign specific weights to these data/information points such that the end narrative for any person is always somewhat different from the other.

Taking this understanding back to where I started, Khan has knowingly or unknowingly managed to craft an alternative narrative which maybe more suited to our time. By 'suited' I not only mean its desirability but more specifically its offering enough incentive to varying factions that they may put aside their old narratives for a better one. This hypothesis is at odds with a recent article which argues that the politics of ideology is dead such that today's politicised youth is 'non-ideological.' Since the author confines the term 'ideology' to merely indicating the right-left divide, the obvious fallout is the overemphasis of 'credibility, rhetoric and charm of top leaders' as the key driving factors. Had this been the case, what stopped Khan from generating mass appeal in the recent past? On the contrary, a movement which was largely concentrated to the youth at its initial stage is increasingly generating appeal across other age groups as well. Surely it is difficult to explain away this shift purely on the grounds of 'credibility, rhetoric and charm of top leader' and/or generational effect.

It is difficult to concede that an ideological person will be attracted to something less than a better ideology. Ultimately the puzzle depends on how one define terminologies. If ideology is defined as a narrative worth exerting for then there is little difference between the movement led by Khan and the earlier ideologically driven movements. The only key difference is that Khan has somehow managed to detach the political narrative from that of left & right and linked it to governance/institutions. There is no better evidence for this than the appearance of both the liberals and the conservatives under the PTI umbrella. Take PTI out of the picture and everyone will return to where they were. In other words, minus the new narrative/ideological shift, a liberal will be a liberal and a conservative will be a conservative with little mutual harmony. Any improvement in the perceived credibility of the house of Sharifs and that of Bhuttos will still have little to no attraction for the liberals and the conservatives, respectively.

The new political ideology is no longer that of left & right but of governance and institutional reforms. The idea of 'change' is no longer linked to the specific mode of governance but with solving peoples problems. The old guards selling the religious or secular mode of governance are increasingly finding fewer and fewer buyers. The complementary narrative of democracy & dictatorship is likewise failing to hold for long with the countrymen and women. Khan has raised the narrative to a level which runs counter to the incentives of the existing ruling elite. He is no longer selling democracy as an alternate to dictatorship but he is selling accountability, power and freedom. He is not selling reduced inflation, less crime and no bomb blast but he is selling institutional professionalism achieved through zero political interference. He is no longer selling the Shariah of the right and the Secularism* of the left, rather he has taken the game to the desired objectives of any of these governing systems - equality, justice and freedom! He is selling the morality/values of the religious east and the equality/justice of the secular west. He is shaping himself as a focal point of national unity. In short, Khan is playing Jinnah!

The more the people buy what Khan is selling, the more difficult it becomes for the ruling elite to compete. The public agitation has forced people to reconsider what they really want. Do they want what Khan is selling? or do they want to stick with the old basket of goods? Khan knows this. He has realised that it is not the resignation which should be the prime objective but rather it should be the selling of this new narrative to as many as possible. The more he convinces this nation that the existing exchange between the rulers and the ruled stands redundant, the more electoral capital he accumulates for the final assault. However, PTI must not forget that only the one sitting on a high wall risks a great fall.

It is no less imperative to emphasise that this carefully knit alliance on the fault lines of old ideological contradictions is only held together by Imran Khan's delicate stitch of new ideological narrative.  Any desire by one of the ideological blocks within the PTI to drag the movement towards their side will lead to a catastrophic implosion. The mystery of unity is always an intellectual puzzle with no precise answer. Treat it as holy and a one-off blessing from God, The Benevolent!


*I have not used the term 'secularism' in an athiestic and purely non-religious sense

Iqbal: The Principle of Movement in the Structure of Islam - Abridged

As a cultural movement Islam rejects the old static view of the universe, and reaches a dynamic view. As an emotional system of unification it recognizes the worth of the individual as such, and rejects blood-relationship as a basis of human unity. Blood-relationship is earth-rootedness. The search for a purely psycho-logical foundation of human unity becomes possible only with the perception that all human life is spiritual in its origin. Such a perception is creative of fresh loyalties without any ceremonials to keep them alive, and makes it possible for man to emancipate himself from the earth.

[…]

The ultimate spiritual basis of all life, as conceived by Islam, is eternal and reveals itself in variety and change. A society based on such a conception of Reality must reconcile, in its life, the categories of permanence and change. It must possess eternal principles to regulate its collective life, for the eternal gives us a foothold in the world of perpetual change. But eternal principles when they are understood to exclude all possibilities of change which, according to the Qur’an, is one of the greatest “signs” of God, tend to immobilize what is essentially mobile in its nature. The failure of Europe in political and social sciences illustrates the former principle, the immobility of Islam during the last five hundred years illustrates the latter. What then is the principle of movement in the structure of Islam? This is known as Ijtihād.

The word literally means to exert. In the terminology of Islamic law it means to exert with a view to form an independent judgement on a legal question. The idea, I believe, has its origin in a well-known verse of the Qur’an– “And to those who exert We show Our path.”

[…]

The student of the history of Islam, however, is well aware that with the political expansion of Islam systematic legal thought became an absolute necessity, and our early doctors of law, both of Arabian and non-Arabian descent, worked ceaselessly until all the accumulated wealth of legal thought found a final expression in our recognized schools of Law. These schools of Law recognize three degrees of Ijtihād: (1) complete authority in legislation which is practically confined to the founders of the schools, (2) relative authority which is to be exercised within the limits of a particular school, and (3) special authority which relates to the determining of the law applicable to a particular case left undetermined by the founders. In this paper I am concerned with the first degree of Ijtihād only, i.e. complete authority in legislation. The theoretical possibility of this degree of Ijtihād is admitted by the Sunnīs, but in practice it has always been denied ever since the establishment of the schools, inasmuch as the idea of complete Ijtihād is hedged round by conditions which are well-nigh impossible of realization in a single individual. Such an attitude seems exceedingly strange in a system of law based mainly on the groundwork provided by the Qur’an which embodies an essentially dynamic outlook on life.

[…]

Passing on to Turkey, we find that the idea of Ijtihād, reinforced and broadened by modern philosophical ideas, has long been working in the religious and political thought of the Turkish nation. ... If the renaissance of Islam is a fact, and I believe it is a fact, we too one day, like the Turks, will have to re-evaluate our intellectual inheritance. …

I now proceed to give you some idea of religio-political thought in Turkey which will indicate to you how the power of Ijtihād is manifested in recent thought and activity in that country. ... With these thinkers religion as such has no independent function. The state is the essential factor in national life which determines the character and function of all other factors. They, therefore, reject old ideas about the function of State and Religion, and accentuate the separation of Church and State. Now the structure of Islam as a religio-political system, no doubt, does permit such a view, though personally I think it is a mistake to suppose that the idea of state is more dominant and rules all other ideas embodied in the system of Islam.

[…]

The truth is that the Turkish Nationalists assimilated the idea of the separation of Church and State from the history of European political ideas. Primitive Christianity was founded, not as a political or civil unit, but as a monastic order in a profane world, having nothing to do with civil affairs, and obeying the Roman authority practically in all matters. The result of this was that when the State became Christian, State and Church confronted each other as distinct powers with interminable boundary disputes between them. Such a thing could never happen in Islam; for Islam was from the very beginning a civil society, having received from the Qur’an a set of simple legal principles which, like the twelve tables of the Romans, carried, as experience subsequently proved, great potentialities of expansion and development by interpretation. The Nationalist theory of state, therefore, is misleading inasmuch as it suggests a dualism which does not exist in Islam.

[…]

We heartily welcome the liberal movement in modern Islam, but it must also be admitted that the appearance of liberal ideas in Islam constitutes also the most critical moment in the history of Islam. Liberalism has a tendency to act as a force of disintegration, and the race-idea which appears to be working in modern Islam with greater force than ever may ultimately wipe off the broad human outlook which Muslim people have imbibed from their religion. Further, our religious and political reformers in their zeal for liberalism may overstep the proper limits of reform in the absence of check on their youthful fervour. We are today passing through a period similar to that of the Protestant revolution in Europe, and the lesson which the rise and outcome of Luther’s movement teaches should not be lost on us. A careful reading of history shows that the Reformation was essentially a political movement, and the net result of it in Europe was a gradual displacement of the universal ethics of Christianity by systems of national ethics. The result of this tendency we have seen with our own eyes in the Great European War which, far from bringing any workable synthesis of the two opposing systems of ethics, has made the European situation still more intolerable. It is the duty of the leaders of the world of Islam today to understand the real meaning of what has happened in Europe, and then to move forward with self-control and a clear insight into the ultimate aims of Islam as a social polity.

[…]

when we study the four accepted sources of Muhammadan Law and the controversies which they invoked, the supposed rigidity of our recognized schools evaporates and the possibility of a further evolution becomes perfectly clear. Let us briefly discuss these sources.

1) The Qur’an. The primary source of the Law of Islam is the Qur’an. The Qur’an, however, is not a legal code. Its main purpose, as I have said before, is to awaken in man the higher consciousness of his relation with God and the universe. No doubt, the Qur’an does lay down a few general principles and rules of a legal nature, especially relating to the family – the ultimate basis of social life. But why are these rules made part of a revelation the ultimate aim of which is man’s higher life? The answer to this question is furnished by the history of Christianity which appeared as a powerful reaction against the spirit of legality manifested in Judaism. By setting up an ideal of other-worldliness it no doubt did succeed in spiritualizing life, but its individualism could see no spiritual value in the complexity of human social relations. “Primitive Christianity”, says Naumann in hisBriefe über Religion, “attached no value to the preservation of the State, law, organization, production. It simply does not reflect on the conditions of human society.” And Naumann concludes: “Hence we either dare to aim at being without a state, and thus throwing ourselves deliberately into the arms of anarchy, or we decide to possess, alongside of our religious creed, a political creed as well.” Thus the Qur’an considers it necessary to unite religion and state, ethics and politics in a single revelation much in the same way as Plato does in his Republic.

[…]

2) The Hadīth. The second great source of Muhammadan Law is the traditions of the Holy Prophet.

[…]

we must distinguish traditions of a purely legal import from those which are of a non-legal character. With regard to the former, there arises a very important question as to how far they embody the pre-Islamic usages of Arabia which were in some cases left intact, and in others modified by the Prophet. It is difficult to make this discovery, for our early writers do not always refer to pre-Islamic usages. Nor is it possible to discover that usages, left intact by express or tacit approval of the Prophet, were intended to be universal in their application. Shāh Wall Allāh has a very illuminating discussion on the point. I reproduce here the substance of his view. The prophetic method of teaching, according to Shāh Wall Allāh, is that, generally speaking, the law revealed by a prophet takes especial notice of the habits, ways, and peculiarities of the people to whom he is specifically sent. The prophet who aims at all-embracing principles, however, can neither reveal different principles for different peoples, nor leaves them to work out their own rules of conduct. His method is to train one particular people, and to use them as a nucleus for the building up of a universal Sharī‘ah. In doing so he accentuates the principles underlying the social life of all mankind, and applies them to concrete cases in the light of the specific habits of the people immediately before him. The Sharī‘ah values (Ahkām) resulting from this application (e.g. rules relating to penalties for crimes) are in a sense specific to that people; and since their observance is not an end in itself they cannot be strictly enforced in the case of future generations. It was perhaps in view of this that Abū Hanīfah, who had a keen insight into the universal character of Islam, made practically no use of these traditions. The fact that he introduced the principle of Istihsān, i.e. juristic preference, which necessitates a careful study of actual conditions in legal thinking, throws further light on the motives which determined his attitude towards this source of Muhammadan Law.

[…]

the attitude of Abū Hanīfah towards the traditions of a purely legal import is to my mind perfectly sound; and if modern Liberalism considers it safer not to make any indiscriminate use of them as a source of law, it will be only following one of the greatest exponents of Muhammadan Law in Sunnī Islam. It is, however, impossible to deny the fact that the traditionists, by insisting on the value of the concrete case as against the tendency to abstract thinking in law, have done the greatest service to the Law of Islam. And a further intelligent study of the literature of traditions, if used as indicative of the spirit in which the Prophet himself interpreted his Revelation, may still be of great help in understanding the life-value of the legal principles enunciated in the Qur’an. A complete grasp of their life-value alone can equip us in our endeavour to reinterpret the foundational principles.

3) The Ijmā‘. The third source of Muhammadan Law is Ijmā‘ which is, in my opinion, perhaps the most important legal notion in Islam.

[…]

The growth of republican spirit and the gradual formation of legislative assemblies in Muslim lands constitute a great step in advance. The transfer of the power of Ijtihād from individual representatives of schools to a Muslim legislative assembly which, in view of the growth of opposing sects, is the only possible form Ijmā‘ can take in modern times …

[…]

One more question may be asked as to the legislative activity of a modern Muslim assembly which must consist, at least for the present, mostly of men possessing no knowledge of the subtleties of Muhammadan Law. Such an assembly may make grave mistakes in their interpretation of law. How can we exclude or at least reduce the possibilities of erroneous interpretation? The Persian constitution of 1906 provided a separate ecclesiastical committee of Ulema– “conversant with the affairs of the world”– having power to supervise the legislative activity of the Mejliss. … But whatever may be the Persian constitutional theory, the arrangement is not free from danger, and may be tried, if at all, only as a temporary measure in Sunnī countries. The Ulema should form a vital part of a Muslim legislative assembly helping and guiding free discussion on questions relating to law. The only effective remedy for the possibilities of erroneous interpretations is to reform the present system of legal education in Muhammadan countries, to extend its sphere, and to combine it with an intelligent study of modern jurisprudence.

4) The Qiyās. The fourth basis of Fiqh is Qiyās, i.e. the use of analogical reasoning in legislation. In view of different social and agricultural conditions prevailing in the countries conquered by Islam, the school of Abū Hanīfah seem to have found, on the whole, little or no guidance from the precedents recorded in the literature of traditions. The only alternative open to them was to resort to speculative reason in their interpretations. 

[…]

Thus the school of Abū Hanīfah which fully assimilated the results of this controversy is absolutely free in its essential principle and possesses much greater power of creative adaptation than any other school of Muhammadan Law. But, contrary to the spirit of his own school, the modern Hanafī legist has eternalized the interpretations of the founder or his immediate followers much in the same way as the early critics of Abū Hanīfah eternalized the decisions given on concrete cases. Properly understood and applied, the essential principle of this school, i.e. Qiyās, as Shāfi‘ī rightly says, is only another name for Ijtihād which, within the limits of the revealed texts, is absolutely free.

This brief discussion, I hope, will make it clear to you that neither in the foundational principles nor in the structure of our systems, as we find them today, is there anything to justify the present attitude. Equipped with penetrative thought and fresh experience the world of Islam should courageously proceed to the work of reconstruction before them: This work of reconstruction, however, has a far more serious aspect than mere adjustment to modern conditions of life. … Early Muslims emerging out of the spiritual slavery of pre-Islamic Asia were not in a position to realize the true significance of this basic idea. Let the Muslim of today appreciate his position, reconstruct his social life in the light of ultimate principles, and evolve, out of the hitherto partially revealed purpose of Islam, that spiritual democracy which is the ultimate aim of Islam.

complete text available at: http://www.allamaiqbal.com/works/prose/english/reconstruction/06.htm

Budgetary Comparison (Static): Development Strategies of Punjab & KPK

The political competition between the two provincial governments (Punjab & KPK) has expectedly or unexpectedly resulted in an apparent convergence across the two budget papers. At the aggregate level there does appear to be certain differences, however, they do not stand much ground when accounting adjustments are made for a consistent comparison. The first impression is that of an uncomfortable similarity. Nonetheless, there are major priority differences at the micro level - distinctly reflecting respective party manifestos - which can only be inferred through a careful analysis of the allocations under annual development expenditure.

Table 1: The %ages have been calculated using corresponding tables (on General Revenue and Expenditure 2014-15) in both the budget documents (given at the end).

Two key adjustments are to be noted when looking at Table 1. Firstly, the apparent difference across the two provinces under the heading of General Public Services (GPS) and Education Affairs & Services (EA) is only due to how the district level education expenditure is treated. Punjab government has divided the education expense into provincial (82bn) and district level (181bn). I infer that the Punjab government has recorded all of the district level expenditure under the GPS since this is where 236bn worth of transfers are made to 'the district government.'  This is contrary to the KPK who appear to have recorded the corresponding expense under the EA. Therefore, I have taken this out of the GPS and placed it under EA to ensure consistency and facilitate comparison. An identical adjustment has been made for health. 37bn of the health related district level spending is taken out of the GPS and moved under 'Health.' Secondly, the entry for Punjab under 'B' has been adjusted by eliminating the double counting (related to state trading + repayment of commercial bank loan) - in line with the KPK format. 

After the aforementioned adjustments, the only difference at the aggregate level is the negligible allocation for 'social protection' by the Punjab government arguably compensated by relatively higher spending under health. Other than this, higher level of Development expenditure (C) in KPK is mostly due to a relatively higher proportion of foreign assistance (most of which is grants). With these points in mind, the potential difference across the two provinces can therefore only be observed in how the annual development expenditure (ADE) is allocated.

In what follows, I start with a breakdown and cross-comparison of Education and Health. I then move on to the breakdown of the annual development expenditure (ADE) which is where the respective development strategies are reflecting themselves.

1) EDUCATION & HEALTH

Note that there are two primary heads under which the sectoral expenditures fall: Current expenditure (CE) in the form of salaries etc; and, annual development expenditure (ADE). I give estimates for each of these to allow you for self-reflection.

Punjab

i) CE: Allocation of 228bn for education (20.8% of the Budget) and 91bn for health (8.3% of the Budget).  

ii) ADE: Allocation of 45bn* for education (13% of total ADE and 4.1% of the Budget) and 31bn for health (9% of total ADE and 3.6% of the Budget). 

*I have taken out the 2.9bn for 'Sports and Youth' from education to stay consistent with the KPK allocation.

Summary: Total allocation of 24.9% and 11.1% (of the budget) for education and health, respectively.

KPK

i) CE: Allocation of 87bn for education (21.6% of the Budget) and 21bn for health (5.2% of the Budget).  

ii) ADE: Allocation of 25bn for education (18% of total ADE and 6.1% of the Budget) and 11bn for health (8% of total ADE and 2.7% of the Budget). 

Summary: Total allocation of 27.7% and 7.9% (of the budget) for education and health, respectively.

2) ADE: PRIORITY BREAKDOWN

While there is little difference at the aggregate level, some significant differences can be observed in the development strategies of the two provinces. 

i) One of the contributing factor (education) has already been pointed out. Education has a share of 18% in ADE for KPK whereas it is 13% for Punjab. 

ii) Industry & commerce gets an allocation of 3.7% by KPK. For Punjab it is 2% of the ADE.

iii) 13.4% of the ADE in KPK is going to district/regional development. For Punjab it is only 5.3%. 
iv) Water & Senitation gets 7.6% and 5% (of ADE) in KPK and Punjab, respectively.
v) Infrastructure development gets a major 43% of the ADE in Punjab. For KPK it is only 24%

   a) Roads: 9.2% of ADE for Punjab; 12.4% of ADE for KPK.

   b) Irrigation: 10% of ADE for Punjab; None

   c) Energy: 9% of ADE for Punjab; 4% for KPK

   d) Buildings: 2.3% of ADE for Punjab; 1% for KPK

   e) Urban Development: 12.2% of ADE for Punjab; 6.3% for KPK

vi) For Punjab, 9.5% of the ADE is going the 'Special Initiatives.' For KPK, an almost similar heading of 'Pro-poor initiatives' has an allocation of 5.7% of the ADE. KPK has explained these pro-poor initiatives to include 'health insureance scheme, insulin for life, mother and child health programme and nursing training programme' (Dawn, 17/06/2014). For Punjab, it is less clear as to what these initiatives are.
vii) Lastly, KPK also has a significant allocation of 8.9% going to 'Home' and 'Finance.' I am uncertain about their explanation.

The above breakdown (plus health) accounts for around 90% of the total ADE for both the KPK and Punjab. The higher spending by Punjab under v) and vi) can explain all of the spending difference between the two provinces under i), ii), iii), iv) and vi). 

CONCLUSION

The difference between the two development strategies can be adequately attributed to the varying priorities across Social Development Spending and Infrastructure Development Spending. While KPK is more focused on education and district level social spending in an attempt to directly target the middle and lower-middle class, Punjab has its emphasis on large scale infrastructure projects in both energy and road network. Which one is better? It is a subjective question. In the end what matters without any ambiguity is the institutional mechanism through which the funding is directed.

Source material: I have used the following two documents for my analysis.

http://www.financekpp.gov.pk/FD/attachments/article/251/White%20Paper%202014-15.pdf

http://www.finance.punjab.gov.pk/system/files/WP2014_15.pdf

Note: It is very difficult to compare the two documents since the divisions and sub divisions are not consistent. Unlike Punjab, KPK seems not to have followed the layout of Federal Budget which makes comparison very difficult. 

Simplified: Budgetary Accounting and What to Expect (2014-2015)

In this post, I have simplified all the statistics in the budgetary paper uploaded by the Finance Ministry. I do not intend to get into what the Govt. plans to spend the money on. Here i only concern myself with past year's performance and how the government plans to finance the expenditure for the coming year. The objective is to predict the potential short falls and the probable measures Govt. will resort to, using previous years behaviour of the PML-N's Govt. as a predictor. Moreover, the analysis has been kept free from any economic or political inclination except as a guideline. Now let us turn to the task at hand:

BUDGETARY ADJUSTMENTS IN 2013-14

The point of this section is to understand how ad-hoc measures are taken to meet the ends when the revenue targets are missed. Looking at past years performance will make us better acquainted with what to expect in the coming year. 

In 2013-14 there were no major revisions/adjustments seen on the expenditure side as per the document. However, there were significant adjustments carried out over the year to meet the financing needs. The govt started with 75.5% of the total expenditure being financed with internal and external resources while the remaining 24.5% of the financing was put under the head of bank borrowing. Over the period, bank borrowing was only used to finance 9.3% of the expenditure. To get a feel of it, bank borrowing was reduced by 600bn (from the planned amount of 974bn to only 374bn). This was achieved by raising an additional 670bn of the resources generated internally and externally. 

An approximate breakdown of the 670bn

Each sub-heading provides further breakdown in the respective category:

1)   106.8 billion was raised under the Net Capital Receipts:

i)    Recovery of loans was revised down by around 116 billion

ii)   Public Accounts head was also revised down by 77.3 billion

iii) To make up for the downward revision and also raise 106.8 billion of additional resources, government increased the borrowing from the public by 264.4 billion. This was further aided by a reduction of around 35 billion in disbursements.

2)    137.7 billion were raised from external resources:

i)   External grants declined by 70 billion (from expected 108.9 billion to actual of 38.8 billion)

ii)  To make up for it, government borrowed an addition of 207.9 billion externally (total of 675.3 billion)

3)    Provinces contributed an additional of 159.9 billion in surplus

4)    266 billion came from the increase tax and non-tax revenues. This is interesting. lets have a look in detail:

i)   Taxes collected by FBR saw a 200 billion shortfall. FBR seems to have missed the targets under all the headings and sub-headings of direct and indirect taxes.

ii)  This shortfall was primarily overcome by using ad-hoc taxation measures and increasing non-tax revenue. Under ad-hoc taxation measures:

a) While petroleum levy was decreased by 12 billion

b) Gas Infrastructure Dev. Cess was increased by 50 billion, and

c) Natural Gas Dev. Surcharge was increased by around 4.6 billion.
There were various revision in the non-tax revenue. Most of them cancel each other. The few significant ones are:
a) Increase of roughly 45 billion under 'Mark up (PSEs & Others)' and unexpected 67.6 billions under Other Profits. I dont know what any of these represent.

b) Further there was an additional: 60 billion of profits from SBP; 6 billion under defence services; and, 6 billion under General Administration Receipts.

c) Most important of all the contributions is the additional 174 billion under the foreign grants (possibly the $1.5 billion from Saudi Arabia). 

Summary of adjustments

To make up for the missed targets and to reduce bank borrowing by 600 billions, there was heavy reliance on: 

i)   public borrowing (264 billion); 

ii)  external borrowing (207.9 billion); 

iii) provincial contribution (159.9 billion); 

iv) ad-hoc taxation (42.5 billion); and, 

v)  334.6 billion increase in non-tax revenue. It can be safely understood that 50% of this was the grant from Saudi Arabia; 17.6% due to increased profits from SBP; 34% contributed by 'other profits' and 'mark up (PSEs & others).' 

Key point

What you should get out of it (for future reference) is that the major shocks coming from the ambitious targets set by the federal govt are absorbed via all sorts of borrowing measures, ad-hoc unplanned taxation, provincial sacrifices and one off good luck shocks.

BUDGET 2014-2015: ALL YOU NEED TO KNOW

As mentioned before, my focus in this post is on the revenue side due to significant uncertainty surrounding the estimates. However, for the sake of completeness, I start with the expenditure side giving a brief overview of the notable differences vis-a-vis previous budget:

Expenditure brief 2014-2015

Total Expenditure is expected to be Rs. 4.3 trillion.

Otherwise, there is not much happening on the expenditure side. Also any breach on the expenditure side is often internally adjusted by cutting the development expenditure (PSDP primarily). Nonetheless, few noteworthy points are: 

i)   allocation for subsidies have been reduced from 323 bn to 203 bn. All of this reduction is coming from less subsidy for both WAPDA/PEPCO and KESC. This will be a challenging task. 

ii)  Grants to provinces is expected to decrease from 53.8 billion to 24.3 billion. What is surprising is that the Grants under other various heads have been increased from 282 billion to 338 billion. 

iii)  Allocation for BISP has been increased from 70 billion to 97 billion which is very pleasing to me personally.
iv)  138 billion were spent in the settlement of the circular debt during 2013-14. However, nothing has been allocated for 2014-15. This is surprising since no significant energy sector reform has been carried out in the recent memory which could have possibly eliminated this problem. At the same time, it has already been reported to have risen to significant levels. Recently government was reported to have borrowed 30 billion from the banking sector in an attempt to clear some of the circular debt (and push the problem further into the future as before).

Planned Financing for 2014-2015

Following is the breakdown of financing sources for the planned expenditure:

i) 16% will be financed by Net Capital Receipts. All of this will be government borrowing from the public in the form of bonds and national savings etc. The two other items (loan recovery and disbursements) cancel each other out.

ii) 20% will be financed by External Receipts. 72% of these (external receipts) will be external borrowing while the remaining will be in the form of grants and privatization receipts.

iii) 6.7% will be via provincial surplus.

iv) 5.3% will be financed by the bank borrowing.

v) 51.7% will be financed by tax and non tax revenue.

What to Expect Over 2014-2015

Lets now focus on some of the revenue targets which were missed last year. As we have already seen, most important of them are:

i)    FBR's tax collection target of 2.8 trillion which is 25% more than this year's revised target. It is most likely to be revised downward by a big margin. Tax collection target was revised several times in 2012-2013 from the target of 2.38 trillion to 2 trillion whereas for 2013-14 it was revised down to 2.27 trillion from 2.47 trillion. Without legal action against tax evaders, it is no exaggeration that the tax target will be missed by somewhat 200 billions. 

In case - which is most likely - FBR misses the target, there is little room for ad-hoc taxation measures since Gas related taxes have already been increased in the proposed budget by 64 billion. This is in addition to a 15 billion increase in the petroleum levy. 

ii)   Privatization receipt of 198 billion under external resources. This roughly equals $2 billion of foreign investment from privatization alone. Nonetheless, its an ambitious but an achievable target. However, there is a possibility of significant political roadblocks in the process towards privatization.

Potential panics

Any shortfall on the revenue side, as has been the case in the past year, will force the government to domestic and international bond markets. The government already plans to borrow another 100 billion from the international market (50 bn via euro bond and 50 bn via sukuk bonds). It is likely, following last year's example, that the govt may resort to borrowing from the international market more than what she plans. Domestic bank borrowing - which is proposed to be kept at 227.9 billion for 2013-14 - may also be breached. Since International donors have already been fully engaged, the third source is borrowing money from the public through savings schemes. All these options will push up the interest rates and crowd out investment especially when the govt is only borrowing to meet the expenses rather than to invest.

(the unit of currency is Pak. rupee unless otherwise stated)