Violating fiscal discipline

The federal government has turned a deaf ear to the World Bank warning to address the macro-economic imbalances and resort to tight fiscal discipline to successfully meet its external obligations and avoid the risk of enormously mounting debt burden. But it has gone for upward revision of budget deficit. The government has now admitted that budget deficit in the first quarter of the current financial year actually stood at Rs. 431 billion, higher by one third than the amount announced last month.

The admission came after Prime Minister Shahid Khaqan Abassi took back the portfolio of Finance Ministry from Ishaq Dar last week. “Based on the actual data, the overall fiscal deficit for July-September 2017 has been worked out at 1.2 percent of gross domestic product (Rs. 431 billion), said the finance ministry in a statement. The new reading is roughly 33 percent or Rs.107 billion higher than the earlier figure. Interestingly, the finance ministry has deviated from the established practice of unveiling a consolidated fiscal operation summary on its website and instead released a vague press release.

The finance ministry has already withheld release of Debt Risk Management Report apparently because of worsening economic indicators The International Monetary Fund has urged the government to release the debt report. Surging debt and acute trade imbalance is eroding the economic gains of large scale manufacturing.  Lahore Chamber of Commerce and Industry expressed concern over the fast widening trade gape and rising foreign debt in a statement issued on Tuesday. The statement says these factors are reversing benefits of hard earned gains and the situation will become critical if immediate remedial measures are not taken

Trade deficit can be tackled by facilitating exports. The Pakistan Textile Exporter Association PTEA) has demanded for regionally competitive energy prices, release of pending refunds and fast track implementation of the export growth package. Textile exports have shown an appreciable rise of 7.72 percent in July-October and the growth could further increase by addressing the remaining challenges. High cost of production is a major stumbling block in boosting textile exports. The cost of energy inputs has reached an alarming stage, making the country’s products uncompetitive in the international market. The price of electricity is abnormally high as compared with countries competing Pakistan in the world market. The electricity tariff in Bangladesh is Rs. 3 per unit; in India it is Rs. Five, and in Pakistan it is Rs. 20 plus per unit. Likewise, gas tariff in Bangldesh is $ 3 per Million British Thermal Unit (mbtu), in India $4.2 mbtu whereas in Pakistn gas is available at $ 7.6per mbtu for local gas and regasified imported liquefied natural gas at $ 11 per mbtu. The price differential of gas between India and Pakistan is unreasonably high as the former does not have reserves of natural gas and is entirely dependent on imported gas for domestic and commercial uses.

The exports facilitation policy of the government is selective. The Economic Coordination Committee, in its meeting chaired by the Prime Minister Shahid Khaqan Abbasi on Thusday, decided to allow the export of 1.5 million meteoric tons of surplus sugar for which a subsidy of Rs. 12 per kilogram is already available but the same facility is not given to exporters of rice, surgical items sports goods and light engineering products. The rice Exports Association (REA) has informed the government that it can export additional quantity of basmati rice to European Union valuing $ 265 million in view of the likely ban on export of Indian rice. The primary driver in the government’s decision making is politics and not prudent economic management. That is why sugar lobby in the parliament is given financial incentives and Rs. 250 billion in the garb of development funds will be doled out to PML-N members of Senate, National Assembly and legislators of Punjab Assembly to manipulate the next general election. Addressing the macro economic imbalances, mounting fiscal deficit and debt burden are not the priority of PML-N government.

Posted in