If Pakistan’s economy is so bad, why is the govt spending more on itself?

It is almost as if the government and its representatives want the party to go on for themselves by extracting more from compliant citizens and businesses and borrowing from future generations of Pakistanis.
Published June 21, 2024

The one key takeaway from the many comments by various representatives of the PML-N government and Finance Minister Muhammad Aurangzeb is that Pakistan is in dire financial straits. As a result, they argue, the government must impose more economic pain on ordinary citizens, who have neither the capacity nor the access needed to escape the clutches of the state and its taxation authorities.

Given the dire straits of these citizens, especially the compliant salaried class, primetime television shows, podcasts, and columns have continuously and rightfully focused on the imposition of even more direct and indirect taxes. That focus, however, has prevented scrutiny over the government’s own expenses, which continue to grow exponentially.

It is almost as if the government and its representatives want the party to go on for themselves by extracting more from compliant citizens and businesses and borrowing from future generations of Pakistanis.

Austerity who?

A couple of years ago, when the Pakistan Democratic Movement came into power to ‘save the country’, the 2022-23 budget put forth by the Shehbaz Sharif-led government put total expenditures of the federal government at Rs13,768 billion — an increase of 34 per cent from the 2021-22 budget estimates of Rs10,262bn. The total current expenditures of the government stood at Rs8,707 billion in the 2022-23 budget, of which Rs1,567bn was earmarked for Defence Affairs and Services, while Rs1,023bn was budgeted for total development spending. A budgeted amount of Rs3,950bn was also set aside for servicing debt, of which Rs3,439bn (87pc) was meant for servicing domestic debt.

Passed at a time of great economic distress and speculation that Pakistan may default on its external debt, the 2022-23 budget was supposed to be the first of many austerity-driven budgets. Many government representatives, including the finance minister at the time, argued that the status quo could not be sustained. As a result, they informed the broader public that tough decisions had to be taken.

Fast forward to 2024 and it seems the Sharif-led government has realised that changing the status quo is too challenging, and therefore, it not only has to sustain it, but double down on it. The latest budget reflects this thinking, with a total budgeted expenditure of Rs24,388bn, a whopping 77pc increase from the 2022-23 budget. Current expenditures have been budgeted at Rs17,203bn — an increase of almost 100 percent from 2022-23 — suggesting that the government has shown neither the ability nor the willingness to tighten its own belts. Total development expenditures have also climbed at a steep rate, increasing by 97pc to Rs2,017bn.

Even more outrageous is the way in which the government seems to continue extracting money from ordinary citizens to pad the wallets of those who work for the state. For example, the combined budget of the national assembly and the senate has increased from Rs9.9bn in 2022-23 to a total of Rs19.98bn — an increase of 101pc.

These increases have come at a time when Parliament has essentially been paralysed; taxpayers ought to wonder what kind of funding increases their ‘elected’ representatives would desire if Parliament were not dysfunctional.

As if the proposed increase of up to 25pc in salaries for government employees was not enough, the state has decided to give them access to even more financial resources in the form of loans and advances. This figure, which stood at Rs10bn in 2022-23, is now budgeted at Rs40bn, a 300pc increase. For context, this budgeted amount by itself is over half of the additional Rs75bn in taxes imposed on the salaried class.

In interviews with the media, the finance minister has argued that expenses such as those incurred on Parliament and the prime minister’s house are not substantial amounts. While he may be right about the scale of the numbers, the fact of the matter is that he and the government are continuously spending ever-larger sums of money on themselves, while telling ordinary citizens that the state has no resources to support them and their families, and that more taxes are the only option.

Because the government no longer has the ability to fund these types of expenses, it has continued to rely on borrowing from future generations to meet its fiscal needs. The projected debt servicing number shows the kind of fiscal hole such policies have dug for Pakistanis and their future generations — at Rs9,775bn, the total debt servicing figure is almost 150pc higher than the 2022-23 budget, with domestic debt servicing standing at Rs8,736bn, a growth of 154pc from 2022-23. What’s worse is that Islamabad seems to be already salivating at declining interest rates, as this would allow it to borrow even more from future generations, simply to continue spending on itself.

Growing resentment

There is a lot of anger among ordinary citizens at this budget, and this was reflected in remarks made to the finance minister by a journalist at a post-budget press conference. This anger is justified, given that sky-high inflation, increased taxes, and low growth has significantly eroded the purchasing power of ordinary citizens.

Since January 2019, Pakistan’s inflation has outstripped the region by over three times, crushing the aspirations and ambitions of every household except those within and adjacent to the corridors of power. The primary reason for this pain is the sovereign’s own poor financial management, which has led to high fiscal deficits through wasteful spending.

Rather than solve the crisis at hand through the budget, the Sharif-led government and his finance minister have simply decided to impose more taxes on households and businesses that are already compliant. When pushed back, they have argued that there is no other path out of this crisis as the government is out of money. Someone ought to ask them: if the government is out of money, where are the spending cuts on the government?

Header illustration created with generative AI