A ticking economic bomb

ISLAMABAD: With political uncertainty growing, a ticking economic bomb is refusing to get defused amid the widening twin deficits that have started causing new financial problems for the PML-N government.

The situation is turning serious as Finance Minister Ishaq Dar has been occupied with allegations of corruption for the past many weeks, ostensibly prompting Sindh Governor Mohammad Zubair to say few days ago that the ousted prime minister had been misled to an extent about the economy.

The simultaneous publication of two frightening reports each by the Asian Development Bank (ADB) and World Economic Forum (WEF) recently further cast doubts about the economy, which according to them, required major effort to avoid more problems in near future.

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Part of the problem is said to be the government’s inaction and the poor performance of the economic ministries whose bosses are busy in political firefighting rather than concentrating on their jobs.

The most challenging issue confronting the government, however, is the budget deficit – the mother of all economic ills, also known as fiscal deficit – has already risen to 5.8% of Gross Domestic Product (GDP) and is feared to go back to the same position of 2013 by the time the year 2017-18 ends. This means 8% (Rs2 trillion-plus). It has already reached Rs1,864 billion.

All the related consolidated federal and provincial budgetary figures of the last financial year reveal that there was 6.1% fiscal deficit, the highest in last four years of the PML-N government. How would the government avoid over 8% budget deficit during the current financial year is anybody’s guess but the situation seems to be heading towards 1999 when the gap between income and expenditure turned incredibly high.

Finance Minister Ishaq Dar is often accused of manipulating figures to show reduced fiscal deficit as well as the total debt that according to the central bank rose to Rs22.2 trillion in 2016-17 compared to Rs14.8 trillion of 2013. The latest figure of the total debt stands at Rs25 trillion.

Interestingly, the budget deficit grew 5.8% of the GDP just in two months (July- August) this year against the prescribed limit of 4% kept by the hurriedly amended Fiscal Responsibility and Debt Limitation (FRDL) Act of 2005 through the money bill in the National Assembly. Intriguingly, it was not allowed to be debated in the house. But then MNAs also did not raise any objection which speaks volumes about their interest in the business of the house.

There is a clear violation of the FRDL Act and questions are being asked as to why the mandatory fiscal policy and debt policy statements were not announced by June 30 this year.

The budget deficit, which ended at 5.8% of GDP in 2016-17 in spite of the fact the government did not include Rs400 billion circular debt in it. Also, Rs250 billion sales tax refunds of the exporters continue to be withheld. If both were included in the final numbers, fiscal deficit would have further risen.

“I am indeed concerned over the rising budget deficit and this all is happening due to increasing financial indiscipline,” said renowned economist and former finance minister Dr Hafiz Pasha.

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He regretted that the National Assembly was told that budget deficit was 4.3 % in 2016-17 which was later shown as 5.8% in the revised estimates. “I do not know why do they lie so blatantly,” he said, adding that growing budget deficit was fast turning unmanageable as the government continues to borrow recklessly and increasing its expenditures without realising its consequences.

He said the way FRDL act was flouted and then amended should be an eye-opener for everybody and must not go unnoticed.

The rising fiscal deficit coupled with huge debt burden, he pointed out, was widening the investment and savings gap, and causing new problems to the current account deficit.

“All is not well if the budget deficit touches 8% of GDP in 2017-18 and I do not know who would fix this problem that is fast tearing apart the entire current budget,” Dr Pasha said.

Another former finance minister Dr Salman Shah was equally critical of the burgeoning fiscal deficit and blamed the Dar-led finance ministry which, he said, destroyed the whole financial discipline by grossly manipulating budget deficit numbers.

He expressed his indignation over large-scale manipulation of statistics and the altering definition of revenue and expenditure. “But still by doing that accounting gimmickry fiscal deficit remained over  6% last year and it is likely to end up close to 8% during 2017-18,” Dr Shah said.

“When you remove the amount of circular debt from the budget and change the definition of other economic indicators, how could there be any hope for any correct assessment of the economy that has thoroughly been destroyed by the government and its finance minister,” he alleged.

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Many people believe that parliament should have held the government responsible for overspending and thus, increasing budget deficit to a current dangerous level. Revenue growth remained a major issue due to which budget deficit has become highly controversial.

The issue compounded when the government kept changing the definition of revenue, expenditure and fiscal deficit. The government did not disburse funds to the provinces under the NFC on time and asked them not to spend money with a view to show a lower fiscal deficit. Likewise, privatisation proceeds and foreign grants were treated as non-tax revenue instead of financing items only to show a lower budget deficit.

Going forward, the prime minister has to spend more time in finding out the solution of serious economic problems in the next few months, failing which collapsing of the economy cannot be stopped.

The writer is a winner of four national APNS awards and four international best journalistic awards

Published in The Express Tribune, October 30th, 2017.

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