Budgets are funny documents. Funny, not in the LOL (laughing out loud) way. Funny, because they are at once amongst the most transparent documents that the government is required to produce — every number must be reported, counted, and squared off — and yet, they are often designed to conceal much more than what they reveal. All in plain sight.

This article is not a commentary on how budgets are made in Pakistan. Nor is it an exposé of the complex political machinations that go into them. And it is certainly not an analysis of the fiscal wisdom or economic impact that they may or may not have.

It is, instead, an exposition. A tour of the innards — the plumbing, if you will — of how official monies flow through the body government. Or, more precisely, what government wants to tell people about how it intends to manage the flows of such monies.

To be honest, this article is primarily an accompaniment to the visualisations that you see on these pages. What I hope you will read — and read carefully — are the diagrams. In these visualisations, I try to comprehensively chart the entire budgetary flows of how government resources and receipts turn into allocations and spending, across all of Pakistan: the flow of all official monies across all of government in Pakistan, as represented by the 2024-25 budget proposals of the federal government, as well as the governments of each of the four provinces — Balochistan, Khyber-Pakhtunkhwa (KP), Punjab and Sindh.

For most people, national budgets can often seem impenetrable and exceedingly dull. However, as Dr Adil Najam explains through his creative and original visualisations, taking the time to understand government budgets can offer great insights into our national constraints and priorities that can, in turn, lead to better analysis and policy-making

The intent right now is neither to critique these budgets nor to scrutinise their detail for meaning and merit. I leave that for another time, and for readers better qualified than myself. My goal is to scour the pages of all these budget documents and to piece together the information spread across them all into clear, concise and coherent visualisations that are conceptually robust, but also make intuitive sense for interested but jargon-illiterate citizens such as myself and those who I assume are reading this (see box: Reading Fiscal Flows).

One should acknowledge that information is both abundant and available. In fact, everything presented here comes from just one source: budget documents presented to each legislative assembly. All of them are easily and publicly available. However, they often tend not to be easily comprehensible or comparable. Relevant information is often dissipated across documents, discussed in cumbersome language, and displayed in non-obvious ways.

Our goal, therefore, is to take what is often seen as complex and opaque information, and to present it in sensible images that are simple and accessible. The hope, of course, is that this will lead not only to better understanding, but also better analysis.

Maybe, if we were to dream, even better policy.

In the remainder of this article, I will try to do three things. First, to share some thoughts on budgets and why they are important. Second, to provide some insights into what I have learnt about how to better comprehend budgets in Pakistan. And, finally, to begin reflecting on just a few policy relevant insights highlighted by this visual review of Pakistan’s fiscal flows.

BUDGETS AND BEYOND

Of course, government budgets are not the same thing as ‘the economy’. Not at all. This needs to be said. And said loudly.

The economy, even if restrictively understood, is an immensely complex, always complicated, and often confounding set of interrelated interactions amongst individuals and institutions, society and government, production and consumption, scarcity and abundance, and much more. Government budgets, important as they are, are nonetheless mere accounting instruments, and that too along only one key dimension: fiscal flows.

However, no matter how you define it, government budgets are, at the very least, a vital lubricator of what happens in and to ‘the economy’. How government generates revenue and how it chooses to spend it (which, by the way, is what a budget is!) is often a defining determinant of growth, of inflation, of employment, of indebtedness, and ultimately of the well-being of the economy, of society, and of the citizen.

Popular discourse in Pakistan, as in many countries like our own, tends to view government budgets as a collection of ‘measures’, ‘relief’ and ‘allocations’. This is as it should be. After all, these are the very things that hit people (and institutions) directly. However, behind the lines in the budget speech that garner the cheering or the booing, there are at least three conceptual dynamics that embody the policy importance of government budgets.

First, all budgets, everywhere — individual, household, institutional, corporate, cities, national or other — are planning tools. They can sometimes also become instruments for reporting or management, but that is not their original or primary purpose. At a fundamental level, they are forward-looking plans based on estimates and projections of incomes and expenses, which are tracked to make sound operational decisions.

Next, and especially in government budgets, the language of decision-making is fiscal: from where the government chooses to raise money, and what it chooses to spend it on. It is these decisions — decisions that are embedded in the budgets themselves as well as decisions they lead to — which gives government budgets their outsized policy importance.

Finally, importantly, and again especially for government budgets: budgets are not just statements of intent, they are statements of aspiration. Senator J. William Fulbright is famously quoted as having said that “a nation’s budget is full of moral implications; it tells what a society cares about and what it does not care about; it tells what its values are.”

If the above is so, then here is what you should be asking yourself as you pour over the images on these pages: (a) if budgets are planning tools, then what is our plan? (b) if budgets are a representation of decisions, then what decisions are our governments taking on our behalf? and (c) if budgets are a moral reflection of our values, then what is it that we care about, and what that we do not?

HIDING IN PLAIN SIGHT

As you ponder on these questions, maybe this is a good place to move from the profound to the practical. Because that is where the answers are likely to lie.

But, first, a little biography and a confession: I have always been a ‘budget geek’. As a kid, I remember my father — a frugal, middle-class, government servant — getting ‘all serious’ about the budget. Before it was announced, the discussion with his friends was all about what the budget might bring. Would there be ‘relief’? Should one expect new taxes? Will they announce any new ‘schemes’? After the budget speech, he would spend the week trying to decipher what had just happened.

At some point, by the very early 1980s, I myself started taking notes during the budget speech. I did not fully understand it all, but I would impatiently wait for the next morning’s newspaper — The Muslim, with the late Ziauddin sahib reporting on the budget in what would always be a full-page-width story with lots of numbers and even technical-looking graphs.

Certainly, it was the numbers that fascinated me. But it was also that — even in those seemingly innocent days — this was the only type of newspaper reporting that seemed fully ‘evidence-based’: numbers provided no place to hide, and in a budget the numbers had to all add up. So, I thought. Naively.

All of this is a convoluted way of saying, I thought I knew how to understand Pakistani budgets. I was wrong.

For example, I do know what the PSDP is: it is the Public Sector Development Programme. This is the section I want to check out first. The PSDP (or the provincial Annual Development Programmes) is where the new investments that will lead to economic growth and human development are supposed to be: new infrastructure, airports, schools and universities, lots of big water and power projects.

To elaborate, if you carefully look at the small print on the bottom-right of the Federal Budget diagram, you will note that there is a surprisingly large allocation for Pakistan’s space research agency (SUPARCO); one presumes SUPARCO’s Rs35.6 billion is for its plans to launch a new satellite and a possible mission to the moon in collaboration with China.

The surprise for me was the conspicuously large item tucked along with the PSDP, called “Net Lending.” I could not intuitively understand what that might be. But once I started looking, the budget document told me that the Rs274 billion allocated to “Net Lending” is actually “the difference between disbursement minus recovery of loans by PSEs [Public Sector Enterprises].”

Practically speaking, one assumes this is a euphemism for write-offs to already failing PSEs. Of course, it is a rather cruel irony that this amount is larger than what is allocated in the PSDP, by my reckoning, to all infrastructure (Rs266 billion). Such, then, are the compulsions of budgeting in Pakistan.

Speaking of things hiding in plain sight, in my image of the Federal Budget flow, I have taken the liberty of calling what is nearly entirely foreign borrowing, simply “Foreign Borrowing”, rather than the more polite “External Receipts” that the authors of the federal budget use. To be fair, most things are mostly clear most of the time in budget documents — as long as one is willing to patiently play detective with the documents.

Except when they are not.

In provincial budgets, this challenge is relatively more pronounced. Even though all provincial budgets are supposed to follow the same format, and generally do, differences keep popping up in both the presentation and the actual accounting of things. Again, debt and borrowing is what nearly always tries to hide most obviously, in lots of different guises, and in lots of different places.

This is why you will see that I have added, on the right side of each provincial diagram, an item called “Debt and Capital Management.” In most cases, though not all, this is the equivalent of debt servicing in the Federal Budget flows.

PICTURES TELL STORIES

There are many stories lurking in the flows of budgetary monies as depicted in our pictures. Some, most certainly, are cries of pain. A few, one wants to hope, may be songs worth singing. I will leave it to the readers to explore and uncover these stories for themselves. I will, however, leave you with headlines of five stories these images helped highlight for me.

One: It is not news that Pakistan is stuck in a debt trap. But just how much of our government’s fiscal flows are defined by debt manipulations is a revelation that screams out of every corner of every diagram. Clearly, not all debt is always bad. But, equally clearly, too much of our debt is not just bad debt, it is badly managed debt. That is why it plays an unending game of hide-and-seek all over all our budget documents, all across our fiscal flows.

Two: That Pakistan’s development space is constrained is also not news. But how much of it is constrained by ourselves was news to me. All the development resources available in federal as well provincial budgets put together are woefully inadequate for a nation of a quarter billion people. But even more woeful is how unimaginatively these resources are used. Going back to the quote from Fulbright: what are our values? What do we really care about?

Three: If budgets are plans, then our budgets — federal or provincial — are not a very good guide to what is the plan. Our characteristic obsession with searching for silver bullets and miracle cures keeps us from looking for opportunities in the entire fiscal cycle. Blame it on the IMF if you wish, but the current penchant is on squeezing the supply-side for increased resource mobilisation; especially by over-taxing the already-taxed.

Yet, even a glance at the images on these pages should alert us to the fact that too many of our past sins and many of our current opportunities lie on the right side of the images; in reducing expenses. The canary in this mineshaft, remains energy. It screams from every twist and turn of the fiscal flow, by guzzling up resources at every step and in every way, but with little evidence of being the motor of growth it is supposed to be.

Four: If you really want to ‘do something’ — good or bad — then, obviously, provinces are the place to be. Look at the image of fiscal flows in any province and what you see is that they may have relatively less money to play with, but far more freedoms to do things with their monies. Look at the image for the federal budget and you see a landscape full of pain points: costs that are locked, obligations that are corrosive, and a cramped space for innovation. To me, it is now a surprise why we tend not to view provinces as the important economic actors that they actually are.

Five: Finally, I am struck by how different the picture looks when you put all the pieces together. Maybe, it is the fatigue of how we announce budgets: the federal budget on one day, followed immediately by each province on a different day. By the end, one feels tired and drained. And there is little effort to pull together all the information and imagine what the fiscal flow of the entire country as a whole looks like.

The simple act of putting all these budgets together on one page or combining them to see what our governments are choosing to spend on is, to say the least, revealing. On the one hand, it highlights some interesting differences — eg why does Sindh not only spend more on education than the much larger Punjab, but actually spends more than all the other three provinces combined!

But it also could point towards opportunities — eg health, much more than education, seems to have become a spending priority for all provinces.

All diagrams by the writer

The writer is Professor and Dean Emeritus at the Pardee School of Global Affairs at Boston University in the USA, and is the former Vice Chancellor of the Lahore University of Management Sciences (LUMS) in Pakistan. X: @AdilNajam

##READING FISCAL FLOWS

• All numbers presented are from the official budget proposals for 2024-25, as presented to the legislative assemblies of Pakistan, Balochistan, Khyber-Pakhtunkhwa, Punjab and Sindh. All numbers are rounded and presented in billions of Pakistan Rupees. Several of the category nodes depicted in the images have been merged together or renamed for presentational or explanatory clarity.

• Federal allocations for the special regions of Azad Jammu and Kashmir (AJK), Gilgit-Baltistan (GB), and Islamabad Capital Territory are included in the Federal Budget numbers.

• Budgetary transfers to provinces are done as a proportion of taxes collected by the federal government and natural resource-related payments due to provinces. The formula is mostly, but not entirely based on population, which means that smaller provinces receive proportionally more than what their share by population alone might have been.

• The right-most categories in the Federal Budget image is derived indirectly from the budget. Author-defined categories are used for Grants and Transfers and for PSDP.

• The right-hand side of the provincial budget flows are based on standard ‘object’ categories that all units are supposed to report on. Interestingly, both Sindh and KP seem to have employee expenses (ie salaries) that are much higher than in the much larger province of Punjab. This may be because different units are using the categories differently, or because Punjab has been implementing its stated budget goal of reducing salary and pension expenditures.

• For the diagram on combined government spending, we use the 10 official ‘functional’ category codes that all units are required to report on. For our visualisation, we differentiate between development and current expenditures, and have also separated out or added debt management, public sector enterprises, and surplus (which, interestingly, is proposed by three of the four provinces).

• A ‘development’ expenditure in budget accounting refers to activities “undertaken to acquire, build or improve physical assets or develop human resources.” What used to be called ‘non-development’ expenditures are now called ‘current’ expenditures and may generally be understood as the expense of running the regular on-going functions of government.

• Budgets define ‘revenue’ as monies “collected during the normal operations of the government”; for Pakistan currently, this mostly means taxation. ‘Capital’, on the other hand, are receipts obtained from sources of finance other than revenue; for Pakistan currently, this mostly means borrowing.

Published in Dawn, EOS, August 25th, 2024