Out of control

Let’s begin with the mini-budget. Our minister for finance has come up with some innovative incentives for the export sector whereby there will be duty concessions on a list of imported raw materials used by our export-oriented industries. Then there is this creative use of tax incentives to direct additional credit towards three important sectors of the economy: small and medium-sized enterprises (SMEs), the agricultural sector, and the low-income housing sector.

Yes, the minister for finance has made some smart moves in trying to revive the falling business sentiment. The supplementary finance bill has also suggested measures that will encourage savings, investments and, at the same time, compress the demand for imported luxury items. The extra-long delay in refunds had sucked out working capital from many exporters and this is the first government to come up with a promissory note-based plan to pump some oxygen back into exporters.

Now on to some macro issues. Alarmingly, government expenditures are completely out of control. And, over the past six months, revenue shortfall is in excess of Rs170 billion. For the first time in our financial history, interest payments on the accumulated public debt are going to hit Rs2,000 billion as opposed to the budgeted Rs1,620 billion. For the first time in our financial history, the federal government’s borrowing from the State Bank of Pakistan (SBP) hit a high of Rs6.6 trillion. The macroeconomy is gradually spinning out of control.

Yes, the official rate of inflation at 6.17 percent is entirely in the control of the Pakistan Bureau of Statistics (PBS), but the real prices on the ground are out of control. The budgetary deficit, the root of most financial evil, is also out of control. According to Fitch, one of the “big three credit-rating agencies”, our budget deficit is six percent of GDP – that may be so without including the circular debt, the losses to public-sector enterprises (PSDs), the government’s commodity operations and losses in the gas sector. Alarmingly, if we include the circular debt, the losses to public-sector enterprises (PSDs), the government’s commodity operations and the losses in the gas sector, our budget deficit will hit 10 percent of GDP

A debt trap is a “situation in which a borrower is led into a cycle of re-borrowing, or rolling over, their loan payments because they are unable to afford the scheduled payments”. From 2008 to 2013, the PPP government borrowed an average of Rs5 billion a day every day for five years. From 2013 to 2018, the PML-N government borrowed an average of Rs7.7 billion a day every day for five years.

Alarmingly, over the past five months, the PTI government has been borrowing an average Rs15 billion a day every day for the past five months. Red alert: This year could become the first year in our financial history where we may be forced to pay 50 percent of all FBR taxes collected to debtors for debt-servicing.

The bottom line is that GDP growth is going to slow down by two percentage points, which means a loss of Rs700 billion. Sooner rather than later, the Ministry of Finance will be forced to bridge a gap worth Rs800 billion resulting from its out-of-control expenditure stream and the serious shortfall in its revenue stream. Sooner rather than later, every Pakistani family will have to suffer an additional burden of Rs30,000 because of the government’s out-of-control expenditure stream and the serious shortfall in its revenue stream.

To be certain, multi-billion rupee leakages in public procurement aren’t being plugged. This includes a gap worth Rs1,100 billion per year in public-sector enterprises, Rs2 billion per day in the electricity sector, Rs150 billion per year in the gas sector, and a burden of Rs624 billion in the commodity operation sector. Can cancer be treated with Panadol?

The writer is a columnist based in Islamabad.

Email: farrukh15@hotmail.com Twitter: @saleemfarrukh