Government’s reckless spending at new high

ISLAMABAD: The government has failed to control expenditures and increase revenues for the second consecutive year as the budget deficit widened to a record high of Rs929 billion in fiscal 2010.

Breaching the budget deficit target reflects the degree of mismanagement by economic policymakers, commented independent experts. Being under the close watch of the International Monetary Fund (IMF) failed to stop government high-ups from reckless spending, they added.

Pakistan overspent Rs929 billion or 6.3 per of the total Gross Domestic Product (GDP) during the previous fiscal year, according to the finance ministry’s summary of consolidated federal and provincial operations released on Tuesday.

The spending was Rs210 billion, or 1.4 per cent of the GDP, more than the budget deficit target of 4.9 per cent agreed with the IMF last May. Even though the IMF later revised the target to 5.1 per cent of GDP or Rs 769 billion, it could still not be honoured. The total revenue stood at about Rs2 trillion against a total expenditure of approximately Rs3 trillion during fiscal year 2010, the summary noted.

The government had also missed the budget deficit target by a wide margin during the first year under the $11.3 billion IMF programme in the financial year 2008-09. Pakistan has ended up with a deficit of 5.2 per cent of the GDP, or Rs680 billion, against a target of 4.2 per cent of the GDP.

On top of adding another Rs929 billion to the national debt that has already touched the Rs8 trillion mark, the authorities have also choked private credit by borrowing 79 per cent or Rs740 billion of the total needs from the domestic market.

Almost 46.8 per cent of domestic borrowing was obtained from non-banking sources while the remaining chunk was acquired from the banking sector, according to the official documents. Only 21 per cent budget financing was possible through external sources.

Industry and businesses have already started paying the price of government mismanagement as instead of bringing its own house in order, the government has increased the principal interest rate to 13 per cent, aimed at tightening the money supply.

According to the budgetary details, 71 per cent of the total revenue was generated through tax revenue of which Rs1.4 trillion was federal revenue, both tax and non-tax, and Rs54.8 billion was the revenue received from provinces.

The Federal Board of Revenue (FBR) collected Rs1.33 trillion in taxes against a target of Rs1.38 trillion, which also contributed to missing the annual budget deficit target.

The total expenditure stood at Rs 3.038 trillion during the last year. The government spent almost Rs8 for non-development purposes from every Rs10 spent.

Only 0.14 per cent of the total expenditure was on social protection, revealed the official budgetary details.

Health expenditure stood at 0.23 per cent of the total spending while the amount spent on protection of the environment was only 0.008 per cent of total expenditure.

The exceptionally low spending on the environment is an example of how little importance the government has given, despite the fact that the country is being threatened by melting glaciers due to climate change.

On the other hand, almost one-fourth of the total expenditure was utilised for the repayment of debt and debt servicing.

Published in The Express Tribune, September 1^st, 2010.