Basic reforms can correct country’s fiscal disorder

Funds required for producing exportable surplus of goods can be acquired only by cutting govt spending

ISLAMABAD: To remain functional with a fiscally sound policy is the primary goal of a modern state. With fiscal waywardness, no state can survive the emerging challenges.

As the national debt and fiscal deficit balloon over the past decade, Pakistan has lost direction in many spheres of the economy. It should be advised to undertake a decisive review of its policy and strategy.

In order to cope with the challenges, the country needs to get rid of the fiscal unruliness. Does Pakistan have the capacity and the orientation to change course and opt for self-correction? Let’s hope it has.



However, the debt and deficit levels suggest Pakistan is drifting away and it is next to impossible to correct the imbalance. The twin problems have already pushed many countries to the point where reshaping of the fiscal priorities became virtually impossible.

Latest figures indicate Pakistan may well be on this disastrous course. Many scholars, statesmen and public finance experts behave like backbenchers in this situation. External debt servicing of about $85 billion and annual budget deficit of around Rs2 trillion should spark widespread worries.

At this point in time, the trouble is the absence of a functional policy to rein in chaotic spending. At the root of the debt and deficit burden is this reckless spending and a consensus is developing on this among all observers of the fiscal situation.

To stay fiscally sound while retiring the massive $85-billion worth of external debt should be the key task in the present situation. This requires a policy aimed at enhancing export-based foreign exchange inflows. This is the crux of the currently evolving consensus.

However, how can Pakistan develop a functional policy to widen its industrial base in order to churn out a significant exportable surplus of goods?

This is a million-dollar question. This is what worries the fiscal observers who are focusing on a policy shift to bridge the budget deficit through export earnings instead of acquiring massive domestic and external debt.

The crisis sparked by the inflow and outflow of funds appears to be the worst in the fiscal history of Pakistan. The revenue-spending-debt triangle haunts many at the finance ministry where the culture of thinking and taking corrective measures has never effectively evolved.

Such a culture develops only in a structure with a history of success in applying reforms. The state apparatus in Pakistan is designed to stay virtually dysfunctional, which is fast becoming common knowledge.

In this scenario, the public finance managers remain stuck to the unsuccessful approach and support antiquated policies of dealing with the short-term deficit only. This tendency disallows out-of-the-box thinking.

This is the basic factor behind Pakistan’s fiscal tragedy. A new approach towards the revenue-spending-debt crisis is hard to find a place as the public finance managers seem to be largely unaware of or deliberately ignore the consequences of unfettered spending.

Servicing the external debt of $85 billion is becoming impossible in a country that is about to cross Rs6 trillion in annual federal spending. Pakistan cannot achieve a handsome economic growth that can embrace the millions that enter the workforce every year given the low status of agriculture, industrial and services sectors.

Reforms of basic nature are the only panacea in such a situation – a proposition the bureaucrats will hate to accept. They are hardly alarmed by the inability to produce the exportable surplus. Funds required for producing goods on a large scale can be acquired only by applying spending cuts.



Measures targeting gross domestic product (GDP) expansion, fiscal accountability and structural reforms succeed in countries where political-economy is the first priority of the state.

I made a phone call to the newly appointed Minister of State for Finance, Rana Muhammad Afzal, to find out what he planned to do to stabilise the sliding foreign currency reserves of the country.

“We shall tell you when we plan something; nothing will be done in haste,” was the minister’s response.

Non-committal – is the only thing that defines such a behaviour.

The writer has worked with major newspapers and specialises in the analysis of public finance and geo-economics of terrorism

Published in The Express Tribune, January 29^th, 2018.

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