KARACHI – Ill planned policy announcements made by the federal and provincial governments during the current fiscal year which critics allege are politically-motivated have started taking a toll on ailing national economy. Giving a 50 and 15 percent raise, respectively, in the salaries and pensions of government employees in the center and provinces, the critics opine that the decision that was apparently worker-friendly but ‘irrational’ if analysed in the context of present cash strapped government’s financial capacity.
The federal and provincial finance ministers announced the then widely welcomed raise in their respective budget speeches for 2010-2011. The incentive might have yielded political dividends for the democratically elected central and provincial governments but the same proved to be backbreaking on the economic front increasing manifold the governments’ spending under the head of ‘running of the government’. According to State Bank of Pakistan (SBP) statistics, the government expenses on account of the running of the government witnessed an upsurge of 23.4 percent annually mainly on the back of higher salaries and allowances for the government employees.
“Expenses incurred under the government’s operating expenditure increased by 23.4 percent annually mainly reflecting the impact of higher salaries and allowances for federal government employees in the FY11 budget,” observed the central bank in its second quarterly report on the country’s state of economy. As expected, the governments in both the centre and provinces had crossed their respective spending limits during second quarter of the FY11 according to the State Bank. It said the ratio of total government expenditures to Gross Domestic Product (GDP) rose to 8.6 percent in the first half of the current fiscal year.
The running of the government along with defense and net lending activities remained the major heads that, the SBP said pushed the federal government’s expenditures up to about 69.5 percent. At the provincial level, both the current and development spending recorded a hefty increase during the second quarter largely offsetting the transfer of federal resources to the provinces under the seventh National Finance Commission Award under which the federating units would be receiving up to 57.5 percent of the divisible pool of resources.
“Due to a sharp rise in expenditures, the consolidated fiscal surplus of provinces dropped from 0.5 percent in the first quarter to 0.1 percent of GDP during second quarter,” the SBP observed. The central bank warned that as the federal government was moving forward with a plan to transfer key ministries to the provinces under the 18th Amendment, the fiscal balance could deteriorate further in the absence of strict discipline on spending.
So far, five ministries, namely Zakat and Usher, population welfare, youth affairs, local government and rural development and special initiatives have already been devolved to the provinces. While the present coalition government seems prone to, what the analysts believe, unnecessarily burden the national kitty through giving fresh salary increments, its development spending are shrinking fast.
According to the State Bank, the government’s development spending remained ‘conspicuously’ low during July-December FY11 with its overall level of spending standing 18.3 percent lower than average PSDP spending recorded during July-December in the years FY06-10. “In nominal terms this implies that real spending has fallen sharply. Distressingly, spending for PSDP in terms of a percentage of GDP is at the same level as expenditure on war on terror and provision of loans and subsidies to the power sector during the first half of FY11,” the bank said. Subsidies to the loss-making state-owned enterprises, power sector and flood relief measures are other prominent white elephants in the case of the national kitty.
Ironically, though the federal and provincial governments managed to make political hay out of their announcements for an ‘exorbitant’ raise in the salaries and allowances, they failed to repeat the step in many government organisations like the Karachi Port Trust, Port Qasim Authority and the Sindh Assembly.
