Violating the borrowing limit

According to a news item in Business Recorder on 29th November, 2011, the federal government is reported to have breached the borrowing limit of Pakistan Railways by taking a Rs 38.6 billion loan from the State Bank of Pakistan. This borrowing was far in excess of the means and advances limit of Rs 4 billion fixed earlier from the SBP and the present increase in overdraft facility was necessitated in the wake of massive financial and administrative mismanagement in the Railways. According to earlier reports, in a recent meeting of the Cabinet Committee on Restructuring (CCoR) presided over by the Finance Minister, the Finance Ministry had turned down the request of Pakistan Railways for additional Rs 20 billion on the ground that the fiscal side does not allow the government to lend or arrange more money from the SBP. Instead, only Rs 0.6 billion from the budget were approved for payment of electricity bills after a vehement protest by the Railways over the reduction in the allocation under this head to Rs 0.5 billion from Rs 1.5 billion this year. It may be mentioned that pressure for higher allocation from the budget or more finances from the commercial banks/SBP for Pakistan Railways has been consistently mounting on the government. The federal government had earlier earmarked Rs 25 billion in the budget which are being released in amounts of Rs 2.3 billion on a monthly basis for pensions and salaries of the employees but officials of Railways continue to contend that their financial position is so bleak that they are even unable to pay for the spare parts used for minor maintenance of the locomotives lying in the workshops. The Railways Minister also wanted the federal government to take the responsibility of the interest payment. In addition, the government is already engaged in arranging finances for 96 locomotives. It needs to be noted that pressure from the Railways is certainly not like a bolt from the blue but has been mounting for a number of years and now has reached a point that bold decisions have to be made by the government to check its continuous haemorrhage of the budget. Those who think that arranging finances from either the SBP or commercial banks are not actually a burden on the budget forget the fact that such contingent liabilities, given the present state of financial affairs in the Railways, are not going to be settled by the borrowing organisation and, therefore, would ultimately have to be paid by the government. As such, these liabilities would not be any different from other public expenditures in practical terms, thus burdening the government exchequer in future and leading to higher fiscal deficit with the same adverse consequences of accentuating price pressures and crowding out of private sector credit etc. Why an entity like Railways is now a sinking ship in Pakistan when other countries are faring much better in this area is a classic example of the extent of financial mismanagement and corruption in the organisation. On the other hand, the fact cannot be ignored that its imminent demise has to be avoided at all costs because of its critical role in Pakistan's economy and people's welfare by massive restructuring or outright sale to the private sector. In our view, the government cannot afford the luxury of maintaining the status quo anymore and continuously succumb to the pressure of loss-making enterprises due to its precarious fiscal position, which leaves no room for such bailout packages. Looking closely at the antics of some of the PSEs like Railways, Pakistan Steel Mills and PIA, their managements do not care anymore to improve their efficiency but have developed an uncanny expertise to almost blackmail the cash-strapped government for dishing out financial favours on a regular basis. Such a vicious cycle needs to come to an end somehow. We understand that ending this cycle would be a major challenge for the government because of its political ramifications such as workers' retrenchment or withdrawal of some of their facilities but at least a beginning has to be made by undertaking certain measures. For instance, loss-making PSEs requesting for bailout packages must be directed to present workable drastic restructuring or privatisation plans in order to plug the widening black hole of their unmanageable deficits. Managements coming up with unsatisfactory plans or failing to achieve the promised targets should be shown the door, irrespective of political affiliations and be replaced by more competent experts with the capacity to deliver. Copyright Business Recorder, 2011