Although the government appears to have achieved a measure of success in restricting the budget deficit in the first quarter of the fiscal year, a massive expected surge in expenditure on debt servicing and subsidies is likely to threaten the budget framework in the remaining months of the year.
Out of every Rs10 of non-development expenditures, roughly Rs8 were spent on debt servicing, defence and subsidies, according to the Fiscal Operations Summary of the Ministry of Finance. The summary goes on to state that the budget deficit has remained at 1.2% of the Gross Domestic Product, or Rs282 billion, from July to September this year.
In terms of GDP, the deficit is 0.1% less than what it was in the comparative period of the previous fiscal year, suggesting some fiscal consolidation. The achievement is primarily due to a one off payment of $1.12 billion made by the United States on account of the Coalition Support Fund.
For the current fiscal year, the government has set the overall national budget deficit target at Rs1.1 trillion, or 4.7% of the GDP.
The latest figures came on the eve of retirement of Finance Secretary Abdul Wajid Rana. He was found struggling in the corridors of power against those who are intent on spending recklessly ahead of the upcoming general elections. Rana achieved success at some occasions, but had to agree with what his seniors desired him to do in less opportune times.
The government is now looking for his replacement. Though a number of candidates are eying the prestigious but challenging post, the attitude of aspirants regarding their willingness to clear cheques will be an important factor determining their appointment, say some observers.
Expenditure
From July through September, the government’s total expenditures surged to Rs735 billion – higher by Rs181 billion, or almost a third – over the same period of last year, according to official documents. Out of that, current expenditures remained at Rs630 billion, which were Rs167 billion or 36% more than last year.
A 73% surge in debt servicing and a whopping 82% increase in subsidies became the two major reasons behind the massive surge in the government’s expenses. Expenditure on debt servicing soared to Rs313 billion, as against Rs181 billion spent last year. The three-month interest bill is one-third of the total annual allocation, suggesting future overruns in interest payments.
On subsidies, Rs58 billion were spent in the period under review, as against Rs32 billion in the preceding year. Meanwhile, defence spending in the three months remained at Rs117 billion, higher by Rs10 billion or a tenth.
Development spending stood at Rs38 billion, as against Rs50 billion in the same period of the previous year. However, this development expenses figure is likely to be revised upward, as Rs65 billion were clubbed as a ‘statistical discrepancy’ – a euphemism that the Finance Ministry uses for sums of money that are untraceable. Finance ministry officials say that the development figure is likely to jump to Rs62-63 billion once the issue is ‘resolved’.
Revenue
The federal government’s total revenues also grew by 28.8% for the period, thanks to the payments made by the US. In absolute terms, total revenues stood at Rs644 billion – an increase of Rs144 billion. However, the Federal Board of Revenue’s receipts grew only 7% and stood at Rs400 billion. The major increase was due to non-tax revenues (mainly the CSF payment), which soared to Rs216 billion – higher by Rs112 billion or 107.7%. The government bagged another Rs23 billion on account of the petroleum levy – an increase of Rs7 billion or 43.4%.
Financing the deficit
To finance the gap between income and expenses, the government borrowed Rs285 billion from the domestic market. Out of that, Rs151 billion were obtained from banks, while Rs133 billion were secured from non-banking channels like National Savings Schemes. The entire sum borrowed was lent by domestic sources, as external borrowings remained at negative Rs2 billion.
Published in The Express Tribune, November 6th, 2012.
COMMENTS (8)
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At least I have reached the point where nothing shocks me anymore.
We are fully capable of breaking this begging bowl and not using the sack if we develop enterprise incubators. But before all this, it will be better if we can develop a enterprise development forum with think tanks selected carefully who would be able to address these issues keeping away from their own gains, motives and whims, in fact these whims and personal gains have damaged the economic environment for almost six decades and kept Pakistan crippled with the begging bowl. Its high time to address this issue before its to late. Just having a high literacy rate alone will achieve nothing, until this high literacy rate is not coupled with an enterprise culture. This will work wonders and can also benefit the export drive as far as Pakistan's international trade environment is concerned. Pakistans economic salvation depends entirely on it stand in the international market
Then there comes another issue along with the daily rising fuel prices, long power cut outs which is only just to damage the enterprise environment. This issue is the constantly rising and uncontrolled land prices as well as the absurdly rising building and house rents which have forced the tennants to get into corruption just to be able to pay their rents, this forces people to try to purchase their own piece of land or to purchase their own houses. For this purchase every method might be employed, whether by hook or by crook, this further pushes up the inflationary pressure, and any more inflation can cause a dangerous revolution the results of which may never be known. On the other hand most educated people or our best minds can be seen leaving the country, a brain drain. If this situation continues, its just difficult to say what might all this add to??? By: Ivan Patrick Carmody (Abbottabad)
"The achievement is primarily due to a one off payment of $1.12 billion made by the United States on account of the Coalition Support Fund." The only thing we did was to beg and polish american shoes to get this aid.. there is absolutely nothing that fundamentally changed. Its still the begging bowl for us.
Will is too small a word. It needs honesty and dedication. I know this because a number of people and organizations tried to develop enterprise development projects here in Abbottabad, but sadly a number of them had to be closed down because of lack of patronism from the government and associated organizations which were there to promote enterprise. On the other hand a number of them took loans from the banks, and because there was no monitoring by the loan granting organization, they just took the money and ran away from the country. The only person who got arrested, was sadly, the guarantor who made the greatest mistake of trusting these wheeler dealers. Thats why this project or plan will have to be taken up in a number of steps, starting with keeping the law making organizations to moitor as to whats being done with these loans, instead of the banking officers, then the person who has taken the loan will not be able run away with such loans. Ultimately at the end of the day its honesty and dedication that can change things and help develop an Entrepreneural Pakistan.
By: Ivan Patrick Carmody (Abbottabad)
Totally agreed with Mr. Ivan. But to do all these things we need only one thing "Will to do thing".