PAKISTAN BEARS RS8.75TN DEBT BURDEN
NEEDS TO DEMONSTRATE HIGH LEVEL OF FISCAL RESPONSIBILITY TO AVERT COMPLETE ECONOMIC BREAKDOWN
SHABBIR H. KAZMI
Sep 13 - 26, 2010
In a high level briefing Federal Finance Minister, Dr Abdul Hafeez Sheikh has warned that the government would not have enough money to pay the salaries to its employees after two months as a result of country's worst floods. He cautioned federal and provincial governments as well as armed forces to demonstrate high level of fiscal responsibility in order to avert a 'complete economic breakdown'. He went on to the extent of saying that economy was on the brink of precipice.
Sheikh said the government would have to show strong commitment to restructure and improve the state-owned public sector enterprises on a war footing and implement without delay austerity measures approved in 2009 to stop further hemorrhage. This should be one of the most crucial steps to avoid further ailment and then take on measures for reviving the economy.
According to finance minister, the country's overall debt that was around Rs6 trillion at the end of fiscal year 2008, increased to Rs8.75 trillion, a whopping increase of 46 per cent accounting for more than half of the country's gross domestic product (GDP). The debt to such a level has become a threat for the country solvency. The minister said the government has no option but to reduce its spending and improve revenue collection. The government has exhibited little fiscal responsibility and failed in limiting debt for the third consecutive year because of extravaganzas and financial indiscipline.
It is a common perception among the masses as well as the economists that since this government has come in power it has been begging on one or the other pretext. It has been begging mainly to enjoy honeymoon rather than bothering about grim economic situation facing the country. Though, enough money was provided by the International Monetary Fund (IMF) the government continued asking for more from friendly countries. It has again gone out with a bagging bowl for rehabilitation of people affected from floods and reconstruction of damaged infrastructure. However, the general perception is that losses being quoted by the provincial and federal governments are exaggerated. Dr Sheikh's statement also seems part of this begging strategy.
While every one appreciates Dr. Sheikh's concerns, the blame also goes to him because he is part of the present government and responsible for maintaining financial discipline. Cynics say that this government has no economic agenda and wishes to complete the term by borrowing as much money as possible. One of the most blatant examples of government's apathy is failure to appoint the central bank governor during the stipulated period. It is ghastly because the country is currently involved in crucial discussions with the IMF and other multilateral financial institutions.
Opposition has been critical of lavish spending of the government but no restraints are applied. Experts have also been saying that growing budget deficit was not because of meager revenue collection but financial indiscipline and extravaganzas. While every effort is being made to squeeze more from tax payers, no effort is being made to curtail lavish spending. Even now, when the economy has gone from bad to worse there are proposals to impose new taxes but no sign of any austerity drive.
The nation appreciates Dr Sheikh's advice to the provinces to meet their additional requirement of funds at their own but doesn't he think they also have a right to demand their share in aid and assistance coming from the international community? The centre just cannot retain all the money received. Enough has been received but least has reached the flood affected. The government must prove it is discharging duty diligently and more will flow. Countries like Italy have already converted its loans into aid and other may also follow but the government has to prove it is serious and taking the right measures.
Dr Sheikh saying that country faces double digit inflation is just admitting the fact but is the government taking any steps to contain inflation? Ironically, the reply is a big NO. The government has failed in checking prices. Other bad decisions include 1) ill-timed import of sugar at colossal cost and its sale at subsidised price; 2) hike in electricity and gas tariffs; 3) curtailing gas supply of fertiliser units and diverting it to thermal power plants and 4) import of urea at double the cost of locally produced and its sale at subsidised rates. Unless the level of governance is improved the economy could not be put on track. Least has been done to accelerate GDP growth rate. Unless economy becomes robust tons of foreign aid and loans would not be able to save the country from going insolvent.
The government had frozen borrowing from the State Bank of Pakistan at last year's level but it ended up with additional borrowing of more than Rs40 billion. Temporary busting of the limited could be attributed to military operation in northern areas of Pakistan and the recent devastating floods. Since donations and foreign aid has started pouring, short-term debts should be retired at the earliest.
Cutting the salaries and perks of the MPAs, MNAs, senators, ministers and advisors could help in saving billions and slashing the number of ministers would still be better. Interestingly, there is talk going on about curtailing development expenditures but no one is talking about slashing non-developmental expenditures. The nation has been suffering from 'living beyond means' but the contentious disease seems to have broken all the pervious record.