As political expediency becomes the rule of thumb when allocating subsidies and extending tax breaks, the federal government has spent Rs267 billion more than its budgeted allocation within the first half of the fiscal year, while tax revenues have fallen short of the target by Rs187 billion.
A summary of federal budgetary operations for the July-December period of the current fiscal year, released here on Friday, reveals a Rs454 billion hole in the budget. The gap will likely widen, as the Ministry of Finance seems to be approving subsidies and politically-motivated projects left, right and centre; while the tax machinery continues on a path to slow implosion, with its affairs in the hands of a few individuals.
Prudent budgetary management requires that expenditures not exceed 40% of the annual ceiling during the first half of the fiscal year, while tax collection must be at least 45% of the annual target. On the contrary, according to the finance ministry’s own documents, the federal government spent Rs1.45 trillion – almost half the annual budget of Rs2.96 trillion. Similarly, tax collection by the Federal Board of Revenue (FBR) came in at Rs883.2 billion, which is just 37% of the annual approved target of Rs2.38 trillion.
Despite the dismal state of affairs, a timely injection of Rs176 billion received from the US on account of the cost of services incurred by the Pakistani military in the ‘war on terrorism’ has helped in damage control. Still, the federal government’s budget deficit has clocked in at a whopping Rs680 billion or 2.9% of the GDP, according to the summary of fiscal operations.
The annual budget deficit target is Rs1.2 trillion, or 5% of GDP, which, according to the International Monetary Fund, will be missed by a wide margin of Rs520 billion.
Of the Rs1.45 trillion spent, non-development spending accounted for Rs1.28 trillion, which is again half the annual approved budget. The federal government has consumed the entire Rs186 billion budget for power subsidies in just six months. Similarly, reckless spending caused more the government to borrow more than what was targeted, which pushed up debt servicing costs in the first half of the fiscal year. The federal government spent Rs552.6 billion servicing debts, which is 60% of the annual servicing cost.
Defence spending in six months accounted for Rs256.6 billion, which comes to around 47% of the annual budget.
To finance the federal budget deficit, a sum of Rs626 billion was borrowed from banks, while Rs95.6 billion was saved by provincial governments, which was appropriated by the federal government to finance its expenditures. The federal government added Rs3.8 billion daily on average to the debt stock in the six months.
In yet another worrisome trend, net foreign loans remained nil as against annual estimates of Rs135 billion. This shifted the entire burden of financing to domestic sources, crowding out the private sector.
Though they seem depressing, the revelations come as no surprise. Most analysts had predicted a very similar picture following the political appointments made in the Ministry of Finance and the FBR on posts usually reserved for seasoned bureaucrats. For example, the finance secretary has been rehired for a one-year period after his retirement from service – something unheard of. The Accountant General of Pakistan Revenue has already blocked Finance Secretary Abdul Wajid Rana’s salary, after the Auditor General of Pakistan declared his appointment illegal.
Similarly, FBR Chairman Ali Arshad Hakeem is a contractual employee who is also serving as the secretary of the Revenue Division. The senior member of the FBR Inland Revenue Service has also been hired after his retirement and is a political appointee.
Published in The Express Tribune, February 9th, 2013.
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