EDITORIAL: Sustained failure to arrest the rise in expenditure has pushed the economy to the current extremely fragile state and, disturbingly, the remedy to deal with the ever-worsening situation remains the same: reliance on external and domestic borrowing at rates and conditions that require the sacrifice of the general public through higher regressive tariffs/taxes, whose incidence on the poor is greater than on the rich, rather than through taking informed policy reform measures that include slashing unnecessary expenditure.
In the current year, the government has budgeted to borrow around 40 billion dollars, with at least 10 billion dollars envisaged to support current expenditure. This flawed policy thrust has implied an ever-rising budgetary outlay on debt servicing costs as well as the repayment of principal as and when due.
What is baffling is that 12 years after the passage of the 18th Amendment to the constitution where many subjects, particularly education, health and social welfare, were devolved to the provinces and the concurrent list of the constitution abolished, these subjects remain a source of considerable outlay in the federal budget.
And while in the immediate aftermath of the passage of the amendment one could legitimately attribute the delay to the time required to strengthen provincial capacity, yet there can be no justification for status quo to continue for more to than a decade later.
And this in spite of the 10th National Finance Commission award that dates back to the same year as the passage of the 18th Amendment, 2010, whereby the provincial share of resources was increased to enable them to deal with the devolved subjects.
There is no question that this particular budgetary outlay flies in the face of the constitution and is nothing but an attempt on the part of the political government to create more positions for induction of cabinet members and oblige the bureaucracy by way more opportunities for promotions and employment and seek its support for its kosher and non-kosher decisions.
In the current year’s budget the running of civil government has been budgeted at 550 billion rupees up from last year’s budgeted amount of 479 billion rupees. And while defence needs are rising yet one would be extremely reticent in recommending even a freezing under this account at present given the massive rise in terror incidents across the border with Afghanistan as well as in settled areas, particularly in KPK.
Pension reforms have been pending since decades with economists warning successive governments that the current system is not sustainable and will implode given that each year the budgeted pension outlay is rising.
In the budget for 2022-23 pensions (military and civilian) have been budgeted at 530 billion rupees - up from last year’s total of 480 billion rupees – an amount that is 20.6 percent of direct taxes budgeted for the current year at 2,573 billion rupees and 27 percent of the budgeted sales tax revenue for the current year of 3,076 billion rupees.
These are extremely concerning statistics that government after government has at best debated and sought recommendations from a committee and/or a special task force that remain unimplemented to this day or at worst simply ignored.
The third major expenditure item that requires an urgent revisit is that of subsidies. These must be targeted to the poor and vulnerable as repeatedly suggested by multilateral and bilateral lenders as well as local economists and perhaps the best way to ensure this is to initiate the much-needed reforms that would end the existing elite capture of the country’s appallingly low resources.
To-date administration after administration, when forced to reduce the unsustainable budget deficit, has relied on slashing public sector development programme rather than making appropriate adjustments in current expenditure.
That must change or else the economy would sink ever deeper into a mire that would make extricating it within the medium term an impossible task. As matters stand today, it is going to take around two to three years of sustained reforms to turn the economy around.
Irrespective of PML-N claims of taking economically harsh decisions at a political cost little has changed. And, disturbingly, the flawed policies continue and urgently needed reforms remain pending and the government remains focused on maintaining the status quo.
Copyright Business Recorder, 2022
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