Lahore: The Pakistan Industrial and Traders Association Front Chairman Mian Nauman Kabir has called for check on government expenditure and high cost of debt servicing, enhancing the budget deficit to around Rs1.4 trillion.
In a joint statement with vice chairman Javed Siddiqi, the PIAF Chairman observed that the total government expenditure has increased by 7 percent to Rs3.2 trillion during the Jul-Dec 2021 mainly due to high cost of debt servicing, which has jumped by more than 15 percent in first half of FY21.
Mian Nauman Kabir observed that the budget deficit is going up despite the government claim of tight control over expenditures, while the only main head of expenditure that remains out of control is the debt servicing cost that jumped by 15 percent to nearly Rs1.5 trillion.
The government should put its house in order to attract FDI, boost exports, increase tax revenues and incentivize domestic savings to get out of this trap, he added.
The exponential growth in foreign debt levels underscores that the country has been unable to attract adequate non-debt-creating, long-term inflows like FDI or increase its exports, which remain stuck at $23billion a year, to meet its external account requirements.
The PIAF Chairman stated that the extremely low level of formal domestic savings as reflected by banking deposits means that the government would have to depend on foreign savings to finance its budgetary operations as well as for balance-of-payments support. For example, the total loans taken during last two and a half years were meant for balance-of-payments or budgetary support. Similarly, the failure to reform the tax system and increase revenue collection is a major factor behind heavy domestic and foreign borrowings by the government.
PIAF vice chairman Javed Siddiqi opposed the excessive borrowing policies of the governments, as the present regime has also added an additional Rs11.35 trillion in the total public debt during the first two years in power, which is more than the total debt the previous government has taken in its five-year term.
Javed Siddiqi added that Pakistan’s fiscal policy continued to focus primarily on macroeconomic stabilization, in response to the financial crisis, instead of putting more emphasis on reforms to foster long-term growth through industrialization by adopting advanced technology. He sought growth-friendly policies, upgraded tax and social spending, and active industrial strategies in close consultation with real stakeholders to achieve sustainable development goals.
Quoting the figures, he said the net federal revenue fell short of the expenditure incurred on the two largest heads – debt servicing at Rs1.5 trillion and defence at Rs505 billion while defence spending has remained less than the previous year.
In terms of size of the economy, the budget deficit remained at last year’s level but in absolute terms the deficit went up, he said and added that the government had set the federal budget deficit target at Rs3.43 trillion or 7.5% of GDP while it has obtained Rs1.2 trillion in loans to finance the deficit.
Amidst consistently rising markup rate, Pakistan’s total debt and liabilities skyrocketed to around Rs36.3 trillion, which were rising at a high speed in the wake of a soaring budget deficit, he added.
He observed that over 40 percent of the additional debt in the past two years is only because of debt servicing expenditures while about 30 percent due to rupee devaluation.