Hasty borrowings

It’s not an odd occurrence that in an election year, governments tend to go overboard with their spending spree. From offering tax rebates to financing infrastructure projects that appeal to the voter’s eye, political parties indulge in whatever they can get their hands on to secure victory.

The last government has massively borrowed from the central bank to finance its unfinished development projects. According to a report published by the State Bank of Pakistan, government borrowings for budgetary support increased by 58.50%, or Rs531 billion to Rs1.43 trillion in the fiscal year that ended on June 30, 2018, compared to Rs907.8 billion of the previous fiscal year.

The amount is especially high given that the country’s budget deficit is reportedly going beyond 7% of GDP, deviating further from the set target of 4.1% for FY18.

As Pakistan already grapples with low revenue collection and has one of the lowest tax-to-GDP ratios in the region,  the ever-increasing expenses in terms of financing or retiring past debt and security challenges are all to concoct a massive fiscal crisis. The crisis the Ministry of Finance has tried to mask by blocking payments near the end of the fiscal year to show a more controlled deficit.  This is likely to put more pressure on the incoming government that already has its work cut out amid deteriorating macroeconomic conditions.

The next government has a tedious task at hand to not only revamp the power sector and introduce reforms to increase the tax revenue but also to do away with the inflationary spiral spawning due to the last PML-N government’s borrowings.

Published in The Express Tribune, July 9^th, 2018.

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