A CRITICAL analysis of the last three succeeding budgets shows that the gap between the government revenues and expenditures is neither sustainable nor manageable given the present policy framework.
First of all let us glance through a series of total receipts and its components as set out in the table-1 below:
The data indicate that our net revenue receipts did not show any growth over three years.
The “other items”, namely, changes in the provincial cash balances and self-financing of the Public Sector Development Programme by the provinces declined over time following devolution of the subjects to the provinces under the 18th Amendment and transfer of the projects falling under them.
Consequently, the share of borrowings in the total receipts zoomed to more than 40 per cent from 34.1 per cent.
What is most pertinent to note is that, following a sharp fall in external borrowings, an increasing reliance was placed on bank borrowings which, according to the State Bank of Pakistan report, has peaked to Rs591 billion in the first nine months of the current financial year as against the estimate of Rs304 billion for the whole year in the budget for 2011/12.
Having discussed the total receipt side, let us now revert to expenditure levels and its components. An over-view is in table-2 as under:
An analysis of the data indicate that our current expenditure in overall expenditure increased exponentially touching almost 90 per cent mark. A major portion of current expenditure was sucked away in public debt servicing. In the estimates of the budget for 2011/12 it was pitched at 44.7 per cent of the current expenditure. However, unofficial statistics suggest a much higher proportion during current financial year.
The most disturbing feature is that in the revised estimates of the preceding year our net revenues were not adequate enough to meet even one item of expenditure, namely, servicing of debt! This suggests that all other expenditures - current and development- of the country were financed from borrowings. How long can the country borrow with no capacity to repay? It has to stop. This is precisely the dilemma of our next budget.
The economy has faced a synchronous downturn under the weight of several factors both domestic and external. Among the domestic factors, the predominant factor has been our failure to countenance the stark realities.
The finance minister and his team are well aware that cosmetic measures and subterfuges cannot solve the budgetary challenges. Time hasrun out for them. Only revolutionary changes are needed to save the economy from disaster.
These steps call for recognition of the failure of neo-classical model (as embedded in the Washington Consensus since modified by many countries after international recession in 2008) and remodeling of our fiscal, monetary, exchange rate, investment and trade policies.
Under this framework, the next budget should be formulated containing the steps such as taxing the rich and the privileged class across theboard, reducing current expenditure at any cost except obligatory payments in debt servicing, cutting flamboyant development expenditure except for energy and infrastructure and legislating punitive provisions for bringing back more than $200 billion held abroad by Pakistanis. Without these revolutionary measures, the economy cannot be saved.
The writer is retired Joint Chief Economist of the Planning Commission.
e-mail:masood_kizilbash.hotmail.com.