Pakistan: Breaching fiscal discipline

Frontier Post

Gen Pervez Musharraf’s prime minister Shaukat Aziz, who also held the portfolio of finance, created a superfluous “economic boom” by heavy imports majority of which comprised luxury items. PPP government’s first finance minister Shaukat Tareen more or less followed the same policy and his successor Dr Abdul Hafeez Sheikh did not lag behind making a mess of the national economy either. The mismanagement of the three finance ministers has now resulted in Pakistan’s total debt and liabilities now nearing Rs16 trillion in about a decade’s time. Two policy statements issued by the ministry on Monday conceded that the government breached major limits imposed by parliament under the Fiscal Responsibility and Debt Limitation Act, 2005, that seeks bringing down debt levels and this seems even vulnerable of the sovereignty of state. Of this the domestic debt is around Rs9 trillion and the rest is the international liability. This is a highly alarming situation owing to higher subsidies, lower revenue collections, drying up of external program loans and currency devaluation. Not only the government showed no limits of its bizarre economic management, it also faltered in submitting annual reports on economy to parliament for three years. The Musharraf regime also behaved similarly. The key requirement of the act of reducing the revenue deficit to nil not later than June 2008 and thereafter maintaining a revenue surplus, remained total failure to begin with and throughout the last one decade. The revenue deficit stood between 3.2 per cent of GDP in 2008 to 2.5 per cent of GDP at the end of fiscal 2012. The second condition of confining total public debt below 60 per cent of GDP and then maintaining it at this limit every year, also could not be fulfilled owing to subsidies related to food and energy sectors due to which public debt to GDP stood at 61.3 per cent of GDP at end June 2012. The third key milestone required reducing total public debt by no less than 2.5 per cent of GDP every year for 10 years - 2003 to 2013 - provided poverty alleviation related expenditures did not fall below 4.5 per cent of GDP was met but failed in doubling health and education expenditures. The policy statements admit that reducing debt by 2.5 per cent every year remained a pipedream throughout the decade. Instead total debt to GDP ratio stood at 59 per cent in 2008 and finally increased again to 61.3 per cent in 2011-12. However, the government was able to maintain social sector and poverty related between 6 per cent in 2008 and 8.2 per cent in 2012. What seems to be the most conspicuous of this economic debacle is, once again, the inability of the corrupt Federal Board of Revenue in taxing all the affluent persons and the wealthy corporate sector. Unless, the FBR does not introduce a judicious taxation system, the economic ills of the country cannot heal.