Analysis of recent budgets unearths horrors of Pakistan economy
BY THE TAUREAN
BUDGETARY TRENDS DESCRIBED IN LAYMAN TERMS
A Fresh look at financial crises Pakistanis are facing
Federal Budget for 2024-25 proposes only a few of the steps needed
THE sheer size of Pakistan’s federal budget for 2024-25 (as proposed by Finance Minister Muhammad Aurangzeb) should have sent alarm bells ringing across the country. The issue is so serious that it should have featured prominently in every discussion on the budget, both private and official. However, thus far one has not seen any sign of contemplation on the part of the nation. Yes, there’s trolling on the issues of filing of income tax returns and hike in tax of salaried people but that can hardly be termed contemplation. Allow one to say that even the mainstream and well-known media houses did not highlight the crucial matter adequately.
Why is the matter important? Well, it’s astounding to see the size of the country’s budget more than double in a space of just five years. The total outlay was only Rs7.03 trillion in the 2019-20 budget, which actually doubled last year (reaching Rs14.46tr). This year it has zoomed past that figure, to a whopping Rs18.87tr. Even a novice will tell you a sharp increase in the total expenditure is a deeply troubling development, particularly if the trend is expected to continue.
Some of you might ask, why should we be overly concerned about a sharp increase in the budget outlay? Doesn’t an increase in budget size represent a rapidly growing pie? Isn’t that a good thing? Well, the answer lies in finding out what’s causing the sharp increase. If a positive factor (like a substantial hike in revenue) is fuelling the size of our budget, then every Pakistani should be dancing and singing in the street. But if a negative factor (such as an unusually sharp increase in an expense account) is responsible, then appropriate corrective measures should be prescribed, and fast.
In order to get to the bottom of the matter, ‘That’s The Story’ carried out some research and found out that runaway/skyrocketing interest payments are causing a sharp increase in the budget size. Tabulated below is what we unearthed during our research:
Year Total Budget Outlay/Expenditure Debt Servicing/Interest Payments
(in trillions) (in trillions)
2019-20 Rs7.03 trillion Rs2.89tr
2022-23 Rs9.50tr Rs3.95tr
2023-24 Rs14.46tr Rs7.3tr
2024-25 Rs18.87tr Rs9.77tr
The extremely serious matter the above table highlights is this: The total amount allocated for debt servicing, which stood at Rs2.89tr in 2019-20, has shot up to Rs9.77tr in the current budget. Surely, a whopping increase of more than 300 per cent (Rs6.88tr) in any expense account within a period of five years is a deeply troubling matter, especially if no substantial change is on the horizon. (In fact, the amount needed for servicing debt is threatening to assume the critical mass.)
By the way, we commonly see one year’s budget showing bigger numbers as compared to the previous year’s document, particularly under accounts like defence spending and pension. That’s because every finance minister has to adjust the figures for each year after taking into account current inflation and increase in the number of pensioners, even if they keep rate of spending unchanged. So witnessing a steady but reasonable hike in defence spending and pension figures (for example) is not a problem. However, the above table makes it apparent that debt servicing/interest payment figures do not fall in the category of “reasonable changes”.
What’s happening is that each year we borrow both from national and international sources to meet our total outlay (expenditure), which in turn causes a sharp hike in debt servicing in the following years. When the total expenditure rises sharply on the back of this hike in debt servicing, we have to raise more revenues just to keep pace with our total expenses. Thus, a vicious circle has been created, which has brought the Pakistani nation to the brink of disaster.
What to do then? Well, ideally we should simply STOP borrowing money. If that’s not possible immediately, then steps should be taken to retire a substantial portion of our total debt stock. Otherwise, the expenditure side of our federal budget will play havoc with the national economy within the next few years. The sooner we realise this, the better it will be.
If a Mahathir or even an Erdogan would be facing the same problems he would have gone into an overdrive at least a couple of years ago, explaining the tough situation to the public in unequivocal terms and calling for belt-tightening measures and sacrifices across all major sectors. I don’t think they would have wasted a single minute when it comes to privatising government-owned organisations that are turning in losses by the billions. The Pakistan Steel Mills is a case in point: its total output is zero today, yet we are still pondering over what to do with it.
This indecision — even cowardice on the part of all our leaders, including political rulers and military dictators — is killing us. (Our rulers apparently are scared of a public backlash in case they ask for too great a sacrifice from the people, particularly because they are not adopting tough austerity measures themselves.) This is despite the several benefits privatisation of state-owned companies will provide. If carried out in a proper manner, privatisation of loss-making companies will reduce the government’s footprint; there will be a decrease in the government’s expenditure; and the nation will get some “cash in hand”. The proceeds from privatisation can then be utilised to retire some debt, which in turn will result in some relief on the debt servicing front.
The other area where some bold (no, brave) steps need to be taken is expanding the tax net. Mind you, the current budget didn’t do what was badly required on this front. Apart from increasing the tax rate of the salaried class, precious little has been proposed by the minister in this regard. As a result, the sectors that were largely exempt from taxes before the announcement of the budget, remain just that — exempt from taxation. That, in one’s opinion, is simply unacceptable. (Evenly spreading out the tax burden among various sectors will ultimately enable the government to provide some relief to the salaried people who are arguably over-taxed.)
Lately, it seems, Prime Minister Shehbaz Sharif has realised the need to take the nation into confidence regarding the difficult challenges it faces. During an address to the nation, he said all the government departments and institutions incurring losses in billions will be shut down once a committee completes a review of the matter. He said a ministerial committee will deliberate on the issue of such redundant ministries and departments, saying he would bring positive results in the next two months. “I think this is a step that will save billions,” he was quoted as saying by Dawn.com. Mr Sharif also exhorted the political and business elite to make substantial sacrifices for the sake of the country.
In a possible case of “one step forward and two steps back”, however, the ‘Express Tribune’ newspaper reported on Sunday the government is considering withdrawing some of the tough measures it had proposed under the latest budget in the area of taxation. Severe criticism of the proposed move forced the authorities to have a rethink, said the newspaper’s report.
The criticism was not at all justified as the nation really is facing the most serious financial crisis of its post-1971 history. For their part, the government should simply ignore the criticism until such time as the public fully realises the gravity of the crisis the country is currently facing. To drive home the point, the PM should make speeches like the one he made on Saturday frequently, perhaps once every month for the next six months.
FOOTNOTE: The facts mentioned above may already be known to most economists and journalists; so one cannot claim they are revelations. The fact, however, remains that members of the public are largely in the dark about the true nature of the crises the nation faces. The journalists would do well to explain the existing precarious situation to them. Also, the media should not create hindrances in the implementation of reforms because they are long overdue. Any delay would serve to deepen the crises, which will be of benefit to no one.
TAGS: Pakistan, federal budget 2024-25, budget outlay, expenditure, debt servicing, interest payments, spending, Pakistanis