Govt re-introduces austerity policy amid declining revenue

Bans purchase of new vehicles, but makes room for exceptions

ISLAMABAD:

Hit by declining revenue, the government, after a gap of one year, has re-introduced the austerity policy, banning the purchase of all types of vehicles and creation of new posts, according to a notification issued by the Ministry of Finance.

As the gap between income and expenditure grows, amid a steep decline in revenues and increasing expenses on defence and debt payments, the ban has been imposed with effect from July.

However, experts do not see a major shift in expenditure patterns, given the past record of the Ministry of Finance that has violated the austerity policy itself. The government has also excluded major expenditure heads from the policy, which would minimise its impact.



Furthermore, this policy may also create operational difficulties for the federal bureaucracy, as the non-salaried budget has already been significantly reduced in real terms, they added.

According to the notification, there will be a ban on purchase of all types of vehicles from both the current and development budget. However, there will be no ban on purchase of vehicles for operational purposes by law enforcement agencies. These agencies will have to seek a no-objection certificate from the Ministry of Finance.

The government has also imposed a ban on creation of new posts except those required for development projects and approved by the competent authority.

The entitlement of periodicals, magazines to officers will remain restricted to one daily newspaper. There will also be restrictions on serving official lunches and dinners.

Principal Accounting Officers have been asked to ensure rationalisation of utility bills. The ministry has directed them to remain within the limits of approved budgets, adding that re-appropriation of budget will not be allowed.

History of the policy

After assuming power in June 2013, the PML-N government had introduced the austerity policy, hoping that it would save about Rs40 billion in a single year. However, the policy could not yield the required results and the government discontinued it in 2014.

While addressing the post-budget press conference in June last year, Finance Minister Ishaq Dar had stated that there was no more room available for cutting expenses.

The government’s past record suggests that the austerity policy will largely remain on paper. The PML-N government has purchased luxury vehicles for the use of the premier by relaxing the austerity policy.



An audit objection pertaining to Rs3 million in expenses on refreshments by the Ministry of Finance during the austerity policy period is currently under discussion of the Public Accounts Committee (PAC). In its last meeting, the office of Auditor General of Pakistan had recommended settling this audit objection but PAC did not agree.

The government’s decision to reintroduce the austerity policy underlines the growing challenges that it faces in balancing its books. Its tax revenues remained short of the first two months target of Rs365 billion by Rs33 billion, indicating the problems that the government is facing in enhancing revenues despite levying unprecedented level of taxes in past two years.

The Coalition Support Fund, being disbursed by the United States, may also dry up soon, which will also create problems for the government. The Ministry of Finance has budgeted $1.5 billion CSF disbursements for the current fiscal year.  The US has threatened to block $300 million due to its concerns that Pakistan military was not taking action against the Haqqani network.

While revenues are falling short of expectations, expenses on debt servicing and defense are increasing rapidly. The government has been borrowing heavily since June 2013, resulting into increase in cost of servicing despite significant reduction in discount rates.

Published in The Express Tribune, September 10^th,  2015.

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