Government likely to borrow for creating fiscal space in election year

LAHORE: In the federal budget being presented on Friday (today) the finance minister has no other option then to further increase borrowing to create fiscal space in the election year despite the fact that debt servicing accounts for 37 percent of the current budget.

If we look at the past two years trend, it is clear that two-third of the budget is consumed by debt servicing, government expenditure and defence. In the year 2015-16, interest on domestic debt amounted to Rs1,168,676 million that was 73 percent of total debt servicing budget.

This fiscal, the budgeted amount for domestic debt servicing was Rs1,247,000 million with 69 percent of the total debt servicing. In 2015-16 the government paid Rs111,219 million on foreign debt interest that was seven percent of total debt servicing.

In 2016-17 the interest on foreign debt increased to Rs113,000 million accounting for six percent of total debt servicing.

Repayment of long term debt consumed Rs316,373 million in 2015-16 being 20 percent of debt servicing expenditure. In the year 2016-17, this amount sharply increased to Rs443,807 million which is 25 percent of the total debt servicing amount of Rs1,803,807 million.

The debt servicing budget is likely to soar further in the coming budget the way this government is accumulating debt. With volatility on all borders and the internal fight on terrorism, there is no way that the defence spending could be reduced. It was 21 percent of the total budget in 2015-16 and 2016-17.

Similarly, civil government expenses have remained steady at nine percent of the total budget expenditure in both years under review. There is no possibility of cutting expenses under this head as well. But serious efforts could be made to make the government efficient.

Currently, the government services provided by police, gas and power distribution companies, and water supply authorities leave much to be desired. These services could be vastly improved through fair and transparent accountability.

The pay and pensions consumed Rs265.69 billion of civil government budget of Rs420.208 billion in 2016-17 which is 63 percent of the entire allocation under this head. This leaves on 37 percent of civil government budget for running civil government and providing services. With heavy payroll related expenditure, funds for running of civil government are shrinking.

Under the head of grant and subsidies, the loss making public sector took the lion’s share. The losses of power distribution companies, Pakistan International Airlines, Pakistan Steel Mill, Railways are bleeding the economy, and crying to be privatised.

The government would keep status quo in this regard in the election year. It missed the opportunity to make head way in privatisation in its earlier year.

It is because of such bleeding and slower increase in revenues that some experts say the government first calculated the expenditure and then looked for ways to generate revenue stream through indirect taxation.

There are certain facts that are not highlighted.  After giving four budgets, the finance minister should announce measures to reduce subsidies, debt and increase efficiencies.

This will reduce cost. It is unfortunate that Pakistani government is operating on single entry accounting system; in order to ensure transparently verifiable accounts there should be double entry system.