Spendthrift ways: Govt consumes 91% of budget in nine months

ISLAMABAD:

In an alarming development, the federal government has consumed 91 per cent of the total annual budget in just nine months, while its revenues could not match the reckless spending, resulting in a budget deficit of Rs1.38 trillion - the highest ever in the country’s history.

The budget deficit of Rs1.4 trillion is 6.6 per cent of the total size of the economy. It is Rs413 billion or 1.9 per cent higher than the annual target of Rs974 billion or 4.7 per cent of GDP, according to official documents.

An official of the finance ministry said that bearing in mind the current trend the annual budget deficit may soar to 8.4 per cent of GDP or Rs1.8 trillion. When the PPP-led government came into power, the budget deficit was Rs777 billion or 7.4 per cent of GDP.

On the basis of new national accounts that have recently been worked out but immediately became controversial, the budget deficit amounts to 7.4 per cent of GDP, the highest in four years.

The massive borrowings for budget financing not only fuelled inflation, but also took away money that could otherwise be borrowed by the private sector for business expansion leading to creation of jobs.

The development comes on the heels of the government’s decision to revise downwards the target of tax collection by Rs23 billion after the authorities missed the monthly targets for two consecutive months. The trend indicates that the federal government is set to miss all its budgetary targets. According to the budgetary plans, the government spends 70 per cent of its total budget during the first nine months of any fiscal year. By that account the federal government has spent Rs528 billion more than the budgetary limits.

It seems that military is more prudent in budget planning than civilians. Defence spending in nine months stood at Rs348 billion around 70.3 per cent of the annual budget of Rs495 billion.

The documents show that against total budget of Rs2.5 trillion, the federal government spent Rs2.3 trillion or 91.2 per cent from July through March. Of that non-development expenses recorded at Rs2.1 trillion and development spending stood at Rs211 billion.

Contrary to uncontrolled spending, against projected gross annual revenues of Rs2.73 trillion, the government could bag only Rs1.66 trillion or 60.7 per cent of the annual revenues. Out of that an amount of Rs762 billion was transferred to provinces as their share in federal taxes, leaving the authorities with only Rs896 billion.

To bridge the yawning gap between expenses and revenues the Finance Ministry borrowed Rs1.3 trillion from domestic market, Rs36 billion from foreign lenders and obtained Rs63 billion from provinces, according to the summary of fiscal operations. It borrowed Rs681 billion from banks and printed Rs195 billion worth of new banknotes.

Major expenses

The documents show that subsidies, interest payments and pensions led to excessive spending in nine months. Against annual target of Rs180 billion, the federal government gave away Rs487 billion in subsidies, largely untargeted. The amount is almost three times more than the original allocation, indicating the authorities’ inability to implement crucial reforms.

The federal government paid Rs625 billion interest on loans, which were almost 90 per cent of the annual target. An amount of Rs579 billion was spent on domestic debt servicing while Rs46 billion were spent on foreign debt servicing. The government spent Rs99 billion on pensions, 93 per cent of the annual pension budget. For running the affairs of the civilian government an amount of Rs147 billion was spent, which was 68 per cent of the annual budget.

Published in The Express Tribune, May 4^th, 2012.