EDITORIAL: No wonder the Auditor General of Pakistan (AGP) has expressed “serious concern” about the country’s “deteriorating financial affairs”. His signatures went on the report for the audit year 2023-24, after all, and there’s hardly any other conclusion to draw when less than 4 percent of the over Rs38.67 trillion budget is left for socio-economic services and 93 percent of supplementary grants, worth more than Rs8 trillion, are not approved by parliament and remain unspent, “representing a loss of public resources”.
We’ve long since reached the point where rising debt servicing costs crowd out spending on socio-economic services and compromise the living standard of citizens.
And since debt servicing jumped from Rs25 trillion (about 84 percent of total expenditure of Rs29.6 trillion) in FY22 to Rs34 trillion (almost 91.4 percent or Rs38.67 trillion) in FY23, this trend has clearly reached the point where it is no longer sustainable even in the immediate term.
You don’t need more than an average understanding of simple mathematics to understand where we are headed. In the AGP’s own words, “A high percentage of expenditure, i.e., 96.26 percent, was expended on General Public Service (debt servicing, defence and civil government expenses), which includes 91.42 percent on repayment of debt and interest payments during 2022-23… Therefore, the federal government was left with a meagre 12 percent of total expenditure for socio-economic functions (other than debt) which is lower than last year’s percentage of 16.07 percent.”
And it’s not as if things are going to get any better because, as everybody understands by now, the fiscal and monetary squeeze mandated by the EFF (Extended Fund Facility), which is critical to avoiding default, will limit the government’s fiscal space even further.
That, of course, will leave even less to dedicate to the “socio-economic services” that are already so badly compromised. This is the classic, textbook debt trap. Only we’re now struggling to obtain further debt that, in such cases, is necessary to pay back old, maturing debt, and the circus can no longer go on as before. That means, failing drastic structural changes, the bottom is going to fall out the moment the government runs afoul of any of the EFF’s harsh conditions in its 3-year duration.
It’s also pretty clear that the government is bent upon self-sabotaging its revenue drive by refusing to tax traditionally politically protected sectors of the economy, despite a hue and cry from the common public and the pressing demands of the treasury. This way, it continues to let politics limit its own fiscal space, putting the country’s very survival into question. Its own non-seriousness has no doubt played a big part in our friends – usual lenders of last resort – also distancing themselves from us now.
The finance minister continues with his usual all-is-well speeches, yet the market already knows that the IMF did not take up Pakistan in its executive board schedule for August largely because the guarantee of loan rollovers from friendly countries hasn’t yet arrived – something the good minister said was already in the bag weeks ago.
So now the factors such as bad management and favouritism are combining with deliberate miscommunication to keep a public that is being relentlessly and unfairly taxed to pay for the rulers’ excesses in the dark about its own real fate.
This is very unfair. And if this goes on, there’s no doubt that the AGP will find himself even more perplexed by the time he signs the outgoing fiscal year’s audit report. The country’s financial affairs are indeed deteriorating very quickly. Right now, it’s even struggling to plug the hole that, for the most part, never took in much water.
But now even friendly countries cannot be counted on to come running to save us each time we throw ourselves into another ditch. In market terms, they are fed up with throwing good money after bad, and Islamabad will have to get its own act together if it wants a serious bailout one last time.
Copyright Business Recorder, 2024