Amid slowdown in revenue growth and higher funding requirements ahead of the elections, the PML-N government appears set to present the last budget of its five-year tenure — for the first time in its third stint.

Unlike the past four budgets, PML-N’s performance would be judged at the end of the last fiscal year on the basis of the promises it has made since 2013. Foremost among them is the elimination of power outages — a promise that brought the PML-N to power and will determine its future in the elections next year.

The upcoming summer will actually test the stability of the power system because next year could turn out to be a slippery one when the PML-N will not be in control of the system.

It will be a great political challenge to meet the expectations of elected representatives and yet ensure that crucial investments remain unaffected without significantly expanding the fiscal deficit

Adversarial players under the caretaker government can question the PML-N’s claims of a power sector turnaround in the middle of the elections next summer. Not to mention a sizable credibility crises caused by an unabated political campaign by Imran Khan whose own performance in KP has not fared well so far.

It will be a great political challenge indeed to meet the expectations of elected representatives through development schemes and yet ensure that crucial infrastructure investments remain unaffected without significantly expanding the fiscal deficit.

Initial indications suggest the finance ministry is unwilling to offer an envelope greater than Rs700 billion for next year’s core PSDP — a miserly seven per cent raise over the current year’ Rs655bn. And this would also include Rs50-80bn worth of the Prime Minister’s Special Development Programme to be implemented through parliamentarians.

On the other hand, it has little room in the final year of its tenure to impose new taxes or add revenue burden particularly on the business community — the traditional vote base of the PML-N — or even the common voter for that matter. It has little control over ‘on-tap’ expenditures like debt servicing, defence and other current expenditures.

A U-turn on the size of the subsidies, on utilities’ side, could be a dangerous route to nowhere given the fact that the government has been imposing a series of surcharges on electricity charges and blocking notifications of tariff reductions determined by the regulator, over the past few years, to show improvement in power sector financials.

This is important because the fiscal deficit in the first half of the current year has already gone beyond 2.4pc of GDP — the highest in four years — despite the government’s claim of continuing with fiscal discipline after saying goodbye to the IMF. This would also be at the centre of mandatory Article-IV consultations with the IMF later this month.

This deficit in just a tad lower than the 2.6pc of GDP in 2012-13 repeatedly condemned by Finance Minister, Ishaq Dar. The said year was concluded at 8pc of deficit after paying Rs480bn for circular debt which is once again in the same region, if not higher.

As part of the budget 2016-17, the government has set a target of containing fiscal deficit below 3.8pc of GDP, but the actual deficit has moved past 2.4pc of GDP (more than 63pc of the limit). The slippage was on both accounts — revenue collection and expenditure control.

But that is not all. The story of an economic turnaround is also challenged by rising inflation, expanding current account deficit, falling exports and remittances, lower industrial output and increasing trade imbalance in the first seven-eight months of the current year.

Despite these signs, Ishaq Dar is hinting at a populist and pro-growth budget and understandably so. He has already made it clear that the “government would accord top priority to the well-being of the people in the 2017-18… budget and focus on measures for further improving ease of doing business and increasing financial inclusion with the primary aim of achieving higher, sustainable and inclusive economic growth”.

Under the calendar, the meetings of the Priorities Committee would be held in the first week of April to fine tune estimates for expenditures and revenues for next year’s meetings of the annual plan coordination committee and national economic council; both of which could be convened in the last week of April and first week of May respectively.

The finance minister is targeting to announce the federal budget on May 26 in the national assembly.

Given an estimated revenue shortfall of about Rs180bn so far, the finance minister has already directed the Federal Board of Revenue to not only take steps to minimise the gap this year but also take measures against tax evasion and for promotion of tax culture to strengthen revenue generation.

Another politico-fiscal challenge for the federal government would be the behaviour of the provincial governments. Repeated healthy cash surpluses offered by the provinces over the past four years have been a key source of strength for the PML-N government enabling it to conclude all these fiscal years with an acceptable fiscal deficit, albeit higher than targets set under the IMF programme.

This year, the PPP government in Sindh and Imran Khan’s PTI in Khyber Pakhtunkhwa cannot be expected to contain the temptation to woo voters through politically motivated development largesse. The situation in Punjab will hardly be different where the incumbents will continue with schemes to consolidate their electoral base.

On top of that, the government may like to be little more extravagant on the issue of salary increase in the final year as it has maintained an average 10pc relief these four years.

Importantly, voters will not be misled by political announcements because they will have a full year to judge the PML-N’s performance before they go to vote.

Published in Dawn, Business & Finance weekly, March 20th, 2017