Like always, next FY Budget too will surely smell rosy. By tying knot with the IMF, the Federal Budget will have nothing much significant to offer because of Pakistan''''s commitment to obtain dollars from the global lender. To correct economic anomalies, focus should be purely on how to plug loopholes and instead of relying on borrowings and increase revenue to fill financial holes. It is bound to fail to live up with the expectations of much-needed relief will bring a further disappointment for the unemployed and lower segments of society. With so much hype of economic stabilisation, the challenge is to deliver.
It is regrettable that for nearly a decade, Pakistan''''s economy is faced with a cash crunch (domestic and external), as government spending exceeds revenue collections, causing budget deficits because of non-friendly fiscal and monetary policies. This situation has arisen because successive governments during their tenures remained focused on managing their books. The problem persists because we deviate from established Standard Financial Procedure, commonly known as Creative Accounting.
Evidence of weak economic policies of past and present is clearly visible, manifesting itself in increased government borrowings, almost stunting private sector growth. This is why central bank''''s profit is either at par or exceeds private sector lending, as banks are lured to make investment in government paper.
Take a look at another example why credit expansion has thinned despite SBP''''s constant liquidity injections. Commercial banks'''' portfolio of advance/deposit ratio (ADR) of past few years are clearly tilting downwards Rs 8.747 trillion versus Rs 4.472 trillion, which is 51.13 percent. That the drop in ADR reached 22 percent in the last 10 years is another valid proof of weak fiscal policy responsible for rising unemployment and poverty rate, low revenue collection and high fiscal deficit that helped to push inflation and discount rate at extreme highs.
The proof of pudding is in its eating. Here is the economic disconnect and to determine the total damage caused to the economy can be derived from country''''s total debt that has breached 60 percent limit. In 2005 total debt amount was Rs 4.191 trillion. In 10 years, by the end of FY2014-15, Pakistan''''s total debt (external and domestic) surged by Rs 14.352 trillion to Rs 18.543 trillion. Then annual cost of debt servicing was Rs 300 billion against FY 2014-15 (current) cost of Rs 1.2 trillion (approx).
Similarly, another alarming economic number is a sharp surge in Debt to GDP ratio that was brought down from 88 percent in 2001 to 57.8 percent in FY 2006. But since then it is constantly climbing and has comfortably breached the 60 percent benchmark debt limit to hit the highs of 63.8 pct (current), which is in violation of fiscal responsibility law. Nothing can be achieved without documentation of economy, which is the mother of the ills.
(The writer is former Country Treasurer of Chase Manhattan Bank)
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