Beyond mini-budget: Foreign debts aside, domestic borrowings at record high in PTI rule

Lahore: Budgets, mini or otherwise, are meant to generate finances, and this is what the cash-starved government did for the second time in its first six months in power. As Finance Minister Asad Umar delivered the mini-budget speech on January 23 in Parliament, he hardly came up with any measure to contain domestic borrowings from the State Bank of Pakistan by the federal government which stands at Rs7.6 trillion, the highest in the history of Pakistan, Truth Tracker has learnt.

According to figures, when the PML-N tenure ended, the domestic borrowing stood at Rs3.6 trillion. When the caretaker government’s term expired, the amount reached Rs3.4 trillion. So, in five months, the government added a phenomenal Rs4 trillion to the tally.

Why the amount has shot up in such a short span of time?

Former Sindh governor and economic expert Muhammad Zubair says the government has three options to meet its expenditures: raise taxes, borrow from commercial banks and print currency.

PML-N leader Zubair told Truth Tracker the federal government failed miserably to raise enough taxes though it made tall claims of generating huge revenue when it was in the opposition, and it also failed to raise money or borrow from commercial banks. It was left with the worst possible option – to borrow from the State Bank which is equivalent to the printing of notes.

“Printing of notes naturally leads to inflation and that against hits the masses, especially the low-income segment. Reason for failure to raise money from commercial banks is due to uncertainty about the State Bank interest rate,” said Mr Zubair. It has gone up so fast and commercial banks expect it to go further up, therefore they are not inclined to lend money to the government fearing losses on higher interest rates.

He said the policy rate during the PML-N tenure was the lowest in more than 40 years.

Interestingly, the finance minister did not even mention the shortfall in their tax collection targets in his January 23 speech. He also did not talk about the growing fiscal deficit which surely will be around 6.5% by the end of the fiscal year, Mr Zubair added.

About the mini-budget presented by the PTI government, he said more than anything else, it was a political statement. The government has been under extreme pressure. Pakistan was expected to grow at 6.2% if the economic performance of the PML-N was to be considered. Instead, we are now talking about 4% economic growth. This in itself will have disastrous consequences for unemployment; revenue generation and higher fiscal deficits

The Jan 23 announcements meant overall revenue reduction of Rs7 billion. This is insignificant but what the finance minister did not talk about is where we stand in terms of an overall revenue shortfall. By December, revenue shortfall was Rs175 billion, says Mr Zubair.

The budget speech did not mention how this shortfall will be plugged. Plus, if the revenue stream remains the same, our total revenue shortfall could be in the range of Rs300 billion or so. There was also no mention of any revised target. “If you are making a budget speech, it is amazing that you don’t mention this shortfall which is at the heart of any budget speech”, Mr Zubair smiled.

Also, the minister forgot or deliberately ignored to talk about higher than stated expenditure figures. It’s clear that our expenditure will overshoot by hundreds of billions.

Zubair posed several questions to his brother minister.

The shortfall in revenue along with increased expenditure mean the fiscal deficit will be significantly higher than earlier planned. There was no mention of how this increased fiscal deficit will be managed. There are two possibilities. Firstly, we could expect new taxes in the next few weeks. If that’s not done, the gap will be financed through borrowing. In either case, it will contribute to higher inflation.

Zubair added that the benefits dished out to non-filers were a serious concern and against PTI’s own stated policy in the past. Why should the non-filers get any benefit? Why would non-filers not be motivated to become filers? How will the tax base be expanded in future? This is an easy way out and reflects a government struggling for survival. The PTI leadership has already indicated revision in the NFC award that will reduce money transfers to provinces. This is based on its inability to expand tax revenue.

Just for your information, the PML-N was able to increase tax revenues at 20% per annum in four of the five years, Zubair shared. “That allowed tax revenues to almost double during the 2013-2018 period and which meant literally doubling the money that provinces got during this period,” He said.

Talking about the credibility of this government Zubair added that since coming into power, it has taken consistent U-turns and has publicly defended those U-turns. May we question why we should trust the announcements of yesterday based on PTI’s own acknowledged criteria of DE committing on vital national issues?

Umar, however, seems upbeat in the face of the criticism unleashed in the wake of the mini-budget. He said Pakistan’s economy was facing problems of more government expenditures, fewer exports than imports, and the more-than-ever need for investment.

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