Illusory success on the fiscal deficit

At first glance, it appears to be a remarkable achievement: perhaps for the first time since the early 1950s, the government of Pakistan has managed to balance its revenues and expenditures, albeit only for a single month: March 2014. However, even a cursory glance at the details suggests that this number is simply not accurate, since it relies on fudging numbers almost to the point of rendering them meaningless.

There are several things that are wrong with the government’s claims. For instance, it included some revenue that should rightfully be accounted for in the previous year’s revenue base. It appears to have also relied on its favourite trick of releasing funds to the provinces so late that it makes it effectively impossible for them to spend the money. In essence, Islamabad is forcing the provinces to run surpluses to compensate for its own massive deficits. And the government also appears to be forgetting to account for some of its liabilities, particularly in the energy sector.

If the government were using the kind of accounting that businesses are required to use, it would be impossible for the government to come even close to claiming that it was balancing its books. But Islamabad’s manic obsession with making the cash numbers for this year balance means that the finance ministry officials have lost even the ability to see through the façade that they have created for the rest of the country.

What this means for the country is that the government’s creditworthiness will not be improving any time soon, which in turn, means that foreign investment inflows into Pakistan will remain far below the levels needed for the country to grow at its full potential. Global investors can hardly be faulted for not wanting to deal with a government that consistently relies on a combination of deception and delusion to run its fiscal policy. The people of Pakistan, meanwhile, continue to wait for their government to gain that perspective.

Published in The Express Tribune, April 10^th, 2014.

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