Mar 14 - 20, 20


SHAHZAD AWAN: I am fellow member of Institute of Cost & Management Accountants of Pakistan (ICMAP); Pakistan Institute of Public Finance Accountants (PIPFA); and Pakistan Institute of Management (PIM). I have over 17 years of experience at managerial level both in public as well as private sectors in finance, accounts, banking, and corporate planning, analysis and evaluation. Besides corporate sector contributions, I have also been associated with capacity building / training assignments at executives / master's level in various leading universities and institutions of Pakistan. I am also on the board of:

- Institute of Cost & Management Accountants of Pakistan

- Institute of Public Finance Accountants of Pakistan

- Member Auditing & Standards Committee of South Asian Federation of Accountants - SAFA

- Honorary Treasurer / Joint Secretary of PIPFA

- Honorary Treasurer of CMA Foundation

I have widely travelled in number of countries and presented many papers at national and international conferences and seminars. Presently, I am serving as Chief Officer, Billing & Recovery in Sui Northern Gas Pipelines Limited (the largest gas transmission and distribution company of Pakistan).


SHAHZAD AWAN: In order to understand the issue, it is essential to first talk about the government receipts and expenditures. Government receipts consist of the four sources:

1. Revenue receipts: In Pakistan, the major inflow of funds is revenue receipts; about 60-70 per cent of the revenue is estimated and collected from revenue receipts. It includes tax revenue, non-tax revenue and surcharges.

2. Capital receipts

3. External resources are the loans and grants, which come from various sources. These sources include consortium, non-consortium and Islamic sources of aid.

4. Self-financing by the autonomous bodies: This source is basically the leftover after meeting all the expenses by these autonomous bodies. This surplus is available to the government for development and non-development expenditures.

On the other hand, government expenditures are mainly classified in to developmental (PSDP) and non-developmental (current) expenditures. The development expenditures also known as public sector development program are directed towards expenditures like investment in energy and power, transport and communications and other infrastructure related activities. Usually these three sectors cover 50 per cent of total allocation of PSDP.

The non-developmental expenditures mainly comprise of army operations, debt servicing, social services, general administration, law and order, subsidies and like others.

It is important to point out here that the share of non-developmental expenditures remains always substantial and usually constitutes about 75-80 per cent of the total expenditures of the government. The government heavily spends on army operations, debt servicing and law and order situation which are all non-developmental expenditures.

Heavy borrowings by the government for current expenditures should be directed towards development expenditures like investment in energy and power sectors to achieve the manufacturing growth in the country. If the government starts spending on developmental projects, investment will automatically come in to the country resulting in minimizing number of challenges being faced by the economy of Pakistan. I take this opportunity and suggest that government should focus to increase the tax to GDP ratio to improve its capacity to spend on development projects. If we look at the tax-GDP ratio of other countries then we realize the need to increase it in our case. Tax-GDP ratio of our neighboring countries like India, Sri Lanka, and China is about 17 per cent, 18 per cent, and 19 per cent respectively.

According to the quarterly data on consolidated budgetary operations, the country's development expenditure is narrowed down by a massive 50 per cent and defense expenditure crossed its quarterly limits by almost the same proportion, and tax revenues remained short of target. The overall defense expenditure in the first quarter of the year stood at about Rs132 billion, higher by Rs43 billion against the first quarter authorized limit of about Rs89 billion. It was, however, Rs14 billion lower than last year's same period expenditure of about Rs146 billion when the government launched military operations against militants in Malakand and Waziristan regions.

On the other hand, the expenditure on Public Sector Development Program (PSDP), which has direct impact on living standards, dropped by a massive 50 per cent to Rs43 billion during the first three months of the current fiscal year against Rs86 billion of the same period last year. Likewise, of the PSDP, the federal development programme was squeezed down to Rs27 billion in the first three months this year against Rs46 billion last year, down by 42 per cent. Similarly, the provincial PSDPs were contained at about Rs16 billion against Rs39 billion during the same period last year. Just to sum up, I would suggest the government to make all-out efforts to slash down its all unproductive expenditures and divert these entire funds on Public Sector Development Program, which is the solution to meet today's economic challenges.


SHAHZAD AWAN: Pakistan's biggest challenge of the day is to reduce its debt burden in order to pursue a way out that leads towards sustainable and equitable growth for poverty reduction. The main challenge for the government is how to handle this unprecedented increasing trend in the external debts. I strongly believe that it should not be the intention to stop borrowings but to borrow for productive purposes, use the loans judiciously and restricted only for developmental expenditure. To me if we start paying back our loans and interest thereon, than we have to compromise on our developmental expenditures which will ultimately effect the standard of living of the masses. Therefore, it is very much required to get a trade-off in this particular situation.? The weak economy of the country is facing unprecedented increasing burden of foreign debt, which has soared to 58 billion dollars from 46 billion dollars in the year 2007, with a sharp increase by 12 billion dollars in just three years time. As a result of heavy increase in foreign debts, now the average debt per Pakistani stands at Rs29,000 which was only Rs6,000 before the present government took over the charge three years ago.

In my opinion, there are three major reasons for this heavy increase in foreign debts of the country. 1) Low level of revenue collections. 2) Heavy losses in state owned enterprises like WAPDA, Pak Railways, Pak steel etc. 3) Worst law and order situation in the country.? The other day Federal Finance Minister has urged that tax collection target of Rs1,600 billion must be met at any cost, which is a good symptom. However, I would suggest the government to privatize the loss making state owned enterprises, instead of continuous injecting billion of rupees in shape of subsidies. By way of this action, the government would be able to divert these funds and improve its developmental expenditures. External debts of our neighboring country India at the end of March 2010 were increased by 36.9 billion dollars to 261.4 billion dollars recording an increase of 16.5 per cent over the end march 2009. Here the good thing is that Indian government mainly utilizes these foreign debts on their developmental activities unlike Pakistan where these foreign debts about 70-80 per cent are being utilized by current expenditures. Growing debt burden of the country has now started impacting negatively the economy and debt servicing cost during the first half July-December period of the current fiscal year 2010-11 reached at Rs310 billion and has consumed major portion of the national revenues and stood at the top. I reiterate my viewpoint that government should not go for borrowings to meet its unproductive expenditures and only to restrict these funds for developmental expenditures only.


SHAHZAD AWAN: The consolidated budget deficit of the country has jumped to Rs490 billion or 2.9 per cent of gross domestic product as the total revenues of the country reached Rs989.6 billion or 5.8 per cent of the GDP and total expenditure stood at Rs1.44 trillion or 8.6 per cent of the GDP during the first half i.e. July-Dec, 2010-11. The above state of affairs shows significant amount of budget deficit of Rs490 billion. In order to bridge this gap i.e. the difference between revenue receipts and expenditures, the government has to arrange financing to meet the budgetary requirements. There are five major sources for deficit financing available with government.

1. Printing new currency notes
2. Public borrowings
3. Foreign loans, aid, and grants
4. Using previous balances
5. Borrowing from banks including from the State Bank

A well-managed deficit financing could be a key to greater economic achievements especially for a less developed country. This always is a very critical decision as how to arrange deficit financing since it has direct impact on the inflationary trends and other economic indicators of the country.