ON the back of missed macroeconomic targets, the government has now finalised three-year ‘Medium-Term Economic Outlook 2013-15’ setting ‘rolling targets to strengthen financial discipline’ with its chief planning strategist conceding that ‘target-fixing model has become a thing of the past.’

The medium-term policy framework, among other macroeconomic indicators, targets economic growth rate, sets the annual fiscal deficit to GDP ratio and inflation rates for the next three years.

According to Deputy Chairman Planning Commission Dr Nadeem ul Haq the projections are based on consistency in macroeconomic modeling. In the same breath, however, he concedes that projections are never met anywhere in the world, as no one can predict the future and that target-fixing model has become a thing of the past.

The targets set for the GDP growth: 4.3 for next year, 4.8 for 2013-14 and 5.3 per cent for 2014-15.

Likewise, the targeted rates of inflation are: 10.5 for next year, 9.5 2013-14 and 8.5 per cent for 2014-15.

And the limit for budget deficit has been fixed at 4.2 for next year, 3.7 for 2013-14 and 3.2 per cent of the GDP for 2014-15.

This is in line with a new budgeting exercise adopted about four years ago to articulate medium-term economic policy objectives to ensure an integrated policymaking, planning and budgeting with a medium-term framework. Although non-binding, these projections at least provide some basis to assess the broader outcomes of government policies.

However, in last year of a democratic government embroiled in all kinds of political and legal battles, no reorientation in official policies can be expected. Nor does performance of the government in moving ahead with reform agenda, raises any optimism about achieving of set medium-term macro-economic targets.

For example, the government claims to achieve these targets “through improvement in productivity and competitiveness, reforms in the markets, and by promoting cities as regional clusters, improving connectivity, reforming the civil service, institutions and public sector entities, harnessing the potential of youth and embarking on result-based management.” It is a tall order.

Asked ‘if target-fixing model was a thing of the past’, why was there a need for this fruitless exercise and waste of time and money? The government says the medium-term macroeconomic framework facilitates all ministries, divisions and departments of the government to “try to make an attempt” to get closer to the projections.

The government claims that the major objective of the rolling targets is to strengthen fiscal discipline by creating an orderly framework for management of the annual budget, to further align federal resources to the government’s policies and strategies, and to build capacity in federal ministries to prepare and manage their budgets in a manner which provides cost-effective service delivery and efficient use of public funds.

A cursory look at the actual indicators for 2011-12, however, suggests a different picture. For example, the fiscal deficit had been budgeted at four per cent of GDP (Rs850 billion) that has now officially been revised to 6.85 per cent of GDP or about Rs1.5 trillion – highest in Pakistan’s history.

Independent analysts, however, believe the deficit would settle around 7.5 per cent of GDP because some of the expected crucial foreign inflows are not forthcoming this month. The GDP growth is estimated at 3.7 per cent against targeted 4.2 per cent. Inflation indicators remained more or less in the projected band.

Total revenue estimated at 13.6 per cent of GDP has fallen to below 11 per cent. Therefore, the total revenue target for next year has been set at 12.6 per cent. The tax revenue that was targeted at 9.3 per cent of GDP is lower than 8.8 per cent achieved in 2010-11. The next year FBR revenue target has again been set at 9.7 per cent of GDP.

How the government is going to achieve a revenue growth of over 1.6 per cent of GDP in a year is unclear when it has declined from 9.7 per cent of GDP in 2010-11 to about 8.1 per cent this year. This seems to be more unrealistic in the absence of any new taxation measure, leaving huge incomes in agriculture, real estate and stocks either outside the tax net or with negligible tax.

The public debt position is even worse. The total debt as a percentage of GDP stood at 54.8 per cent in 2009-10 and was projected in the budget 2010-11 to decline to 51.5 per cent that year, followed by 48.9 per cent in 2011-12 and 46.3 per cent in 2012-13.

On the contrary, the total debt to GDP ratio increased to 57.2 per cent in 2010-11. In reality, the total debt as percentage of GDP has now been revised to 59.6 per cent. With this dismal performance, the debt to GDP ratio has been estimated at 56.7 per cent for next year, followed by 51.3 per cent in 2013-14 and 48.1 per cent of GDP in 2014-15.

Although, the government intends to accelerate restructuring of public sector enterprises — as one of the steps to reduce debt to GDP ratio in the next year —, there is hardly any evidence of any progress on that front. The authors of the this strategy, however, forget that capital injection in these PSEs has gone beyond Rs2 trillion in four years, even higher than total revenue of the current year. The power sector alone is reported to have eaten up Rs1.6 trillion in four years, with no signs of improvement.

In the medium-term framework, the government has estimated $14.1 billion remittances from overseas Pakistanis next year compared with $13.2 billion expected during the current year. It expects the remittances to grow to $15.1 billion in 2013-14 and $16.2 billion for 2014-15.

A part of the official optimism is based on its plans to focus on energy and infrastructure development, tariff rationalisation and persuading the provincial governments to improve financial discipline. But like the federal government, provinces could not be expected to be fiscally responsible ahead of elections.

How this spending spree is to match medium term macroeconomic targets will need to be seen in the year ahead. —Khaleeq Kiani