Eight-month performance: Govt spends about Rs950b more than its income

Deficit widening due to hefty subsidies, costly borrowing and falling tax revenues.

ISLAMABAD:

The federal government, which completed its tenure on March 16, spent roughly Rs950 billion more than its income in just eight months of the current fiscal year, highlighting economic mismanagement that remained the hallmark of the regime. On average, it borrowed Rs4 billion a day to bridge the gap.

The budget deficit in the first eight months (July-February) of the current fiscal year stood at 4.1% of gross domestic product or Rs943 billion, according to sources in the Ministry of Finance. The deficit target, approved by parliament for the whole year, was Rs1.1 trillion or 4.7% of GDP and the figures suggest that this will be missed by a wide margin.

Hefty power subsidies, high cost of borrowings, tailor-made expenditures and most importantly decline in tax revenues were the major drain on resources. Analysts believe that all this was the outcome of appointing incompetent people on positions responsible for controlling expenditures and enhancing revenues.



The impact of a bailout package given to Pakistan International Airlines, Rs16 billion tube-well subsidies, salary raise for civil servants and subsidies on sugar and fertilisers has not been included in the fiscal operations for the eight months.

Any new government would take at least three to four months to dig out hidden expenditures that the government incurred, but were successfully camouflaged by the finance ministry, said Dr Ashfaque Hasan Khan, a renowned economist, who regularly criticises financial mismanagement on the part of the government.

He said the damage that the PPP-led government did to the economy in the past five years was more than the damage suffered in the past 61 years and the damage caused in the last one month of the government’s term was more than the damage in the last five years.

In the eight months under review, the finance ministry doled out Rs235 billion in power subsidies against the target of Rs185 billion for the whole year. The subsidy is feared to cross Rs300 billion as the government neither rationalised power tariffs nor controlled power theft.

Similarly, Rs713 billion was given in interest payments against the envelope of Rs617 billion for the eight-month period.

The Federal Board of Revenue was supposed to generate Rs1.585 trillion in taxes in July to February, but its actual collection stood at Rs1.146 trillion, a shortfall of Rs439 billion, which is equal to 1.9% of GDP.

Owing to the slippages, the just dissolved federal cabinet had revised upwards the budget deficit target to Rs1.5 trillion or 6.5% of GDP on the recommendation of the finance ministry. However, this target too has been kept low, according to Planning Commission Deputy Chairman Dr Nadeemul Haque.

He has warned the federal government that actual power subsidies would swell to Rs600 billion against the revised target of Rs345 billion. He pointed out that the finance ministry was still reluctant to count subsidies given on sugar and fertilisers. “Addition of these will take the budget gap above 8% of GDP,” he wrote to the finance ministry.

Haq, who has lately started criticising the government, also attacked the government’s policy of controlling the budget deficit by levying more taxes. “Our main problem is our inability to control expenditures, yet we continue to plan for more revenues,” he wrote.

Ignoring the advice, the finance ministry argues that the expenditures are rigid as almost two-third of the expenses is incurred on debt servicing and defence.

Published in The Express Tribune, March 21^st, 2013.

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