Presenting of the fiscal budgets have been a continuing process in Pakistan and compromising its sanctity is also an old phenomenon.
The federal government is again set to present the budget for the fiscal years (FY) 2024-2015 expectedly on the 10th of this month. This budget is said to again reflect the dictations of the international money lending institutions. The sanctity of this budget will again be compromised.
Why is this so and how long would it persist here is a question not difficult to understand?
Given the situation, it is likely to last till the basic reason behind it is not addressed. This reason is the poor governance. This government is going to present this budget when according to the available reports, Pakistan’s public debt – both domestic and foreign – has gone to Rs. 67.5 trillion. It is increasing as the governments remain on the way to settle the budget deficits. The State Bank data indicates that public debt is almost three quarters of the nation’s total economic output. This deficit is increasing by every year.
It was Rs. 32.70 trillion in 2019, and Rs. 39.87 trillion in 2021. A budget review report of the finance ministry revealed that government’s interest payments in the first half of this fiscal year jumped by 64 percent (Rs. 4.22 from Rs. 2.57 trillion). All this increases huge pressure on the budget and in turn forces the governments to majorly cut the development spending to meet the IMF goals for showing primary surplus.
The primary surplus is the net current revenues and less current expenditures excluding interest payments on the government debts. A recently published report said that that the total debt payments this year may rise to Rs. 8.3 trillion. What kind of this budget will be when the government is running an average fiscal deficit of 7.33 percent of the total GDP? How it can be without comprise when the debt is 80 percent of the total production (GDP)?
Are not the budget related issues and its sanctity are linked with the governance system in Pakistan? in view of the economic experts, getting out of this situation would be impossible without addressing the reasons for fiscal deficits. It cannot be dealt with without rightly taxing all undertaxed and taking the new ones in this net and controlling the energy sector that is said to the existential threat for Pakistan’s economy.
The government’s reliance on domestic banks to fund its fiscal deficit has increased manifold. These borrowings have reached to 116 percent (from Rs. 3.15 to Rs. 6.79 trillion. The State Bank says it is for slow foreign inflows and poor revenue collection. It is compelling the government to seek for debts to pay back the existing loans. Would it be sustainable when it is being reported that Pakistan is seeking loans even from Chinese banks to settle this issue? Is it a step towards the resolution of actual problem or the country is going more deeper in debt net? Why not the government is not doing some major surgery? Why is it not going for the right sizing, abolishing or the devolving of the extra burden creating departments? The government’s inability to increase revenues through broadening the taxing, cutting of expenditures, and lack of will is responsible for the poor economic health and taking dictations from others. Here the external debts are largely used to support government consumption rather than to boost productivity. Poor export performance also shares in our weak capacity to address the debt problems.
The Federal Board of Revenue (FBR) is the sole department responsible for collecting all forms of taxes. It remained fail in executing the track and trace system. Its outreach to the retailers making business in villages and remote areas is missing. Its revenue generation is just urbanized. Currently the income tax is taken from the one the earning Rs 600,000 annually. Is this department taking tax from all those earning this amount? The FBR launched a trader friendly policy but remained failed in its implementation across Pakistan.
The traders were asked to voluntarily register themselves with this department, but till the given deadline of April 30, only 130 came. Afterward with some efforts this number reached to nearly 35000; it is just 1 percent of the targeted 3.3 million. This department has more than 25000 employees that can be reduced to less than half if its systems are digitized. There is a law stopping all to buy an immoveable property worth Rs 5 million and moveable worth Rs 1 million on cash. Has it ever tried to implement this law?
What this filer and non-filer is? Has this department ever checked why do not the filers file returns again? The one who filed this return obviously has financial resources that needs to be checked, that it had not done. Same is the case when it comes to those having business and properties out of Pakistan. What this department or the government did after the Dubai Unlocked? Pakistan is an agriculture-based economy and agriculture according to the recent figures share nearly 24 percent of the GDP that is more than nine thousand billion. Do not the agriculturists or those associated with it earn 600000 per year? what tax is collected from this sector? Should not this department be out sourced to the provinces or other?
As far the power sector, it is showing a circular debt of Rs. 2600 billion. WAPDA used to be the only department dealing with energy needs in Pakistan. Within a period of 25 years this size of the department’s establishment has increased to more than 25 percent. Up till 24 new entities have been added to this department since 1989. Before 1989 only one department used to handle energy matters and now 24 departments are doing this work. Adding to the miseries every of these entities is costing this nation.
Who made the agreements with private power sector companies in US dollars? Why not these agreements are cancelled when the option is available under an international law to abolish such agreements when it is not workable? Unfortunately, when the government cannot establishment its argument in local courts then how it will revoke such agreements. the Budget should reflect that what the government will cut from its expense and where this money would be spent. Did we ever think that in 2007- 2028 our foreign loan burden was 40 billion USD and now it has increased to 130 billion USD? How it happened? This all happened because governance by all governments in Pakistan have been poor, but denied. Today the government to support its budget is asking for a loan of Rs 9749 billion. This loan is on 22 percent markup rate. The federal government is showing a deficit of nearly Rs. 4338 billion and the provinces are showing 435 billion in surplus. Are not the provinces relying on the amounts given under NFC?
However, in view of the renowned economists, the budgetary deficit issues can never be addressed without: Rightsizing, devolving or abolishing of the of the extra departments and staff, outsourcing of the FBR, privatization of state owned entities, fully functioning of the governments, right from the federal to the local level, cutting of the expenditures, broadening and right evaluation of the tax system, enhancing exports, promoting the IT industry, digitization of economy, fully control of smuggling and industries like cement and tobacco, effective use of mines and mineral sector, and utilizing the loans on production.
When some departments are the subject of provinces like agriculture than what the ministry of food security is doing in the center? Why there are so many miniseries? the federal and provincial departments need to be right sized and the local governments’ efficiency and work need to be enhanced in Pakistan.
Until the government is not serious in tacking at least the said steps, it can never intact the sanctity of its budget. This year’s budget may also cause a political damage to this government. The opposition is just waiting for the announcement. It will then cash it in the public to serve its political purposes. It should instead play some constructive role in suggesting the right steps. It is not about politics; it is about Pakistan.
(Senior journalist Rana Kashif has authored this article)
