The ballooning deficit

  • The 2018-2019 budget deficit was out of control

The figures are almost too wild to be true, but since they are contained in the Finance Ministry’s own Budget Operations Statement, they have to be believed. Not only was the budget deficit for 2018-2018 the highest on record, but in terms of percentage of the GDP, at 8.9 percent the highest in at least 40 years. This has happened even though development spending was cut to the bone, and makes nonsense of the Budget figure, which had a revised claim of 7.2 percent. Though the shortage of money led to a slashing of the development budget by keeping it at Rs 1.008 trillion, the deficit could not be controlled. The PTI should take responsibility as it was in office for most of the financial year when the deficit was incurred, a financial year in which there were a number of austerity measures taken, like selling PM House buffaloes and cars, but which do not seem to have worked. The effects of honest government does not seem to have translated into figures.

One of the sources of the deficit was military expenditure, which went up Rs 47 billion over estimates. This happened because of the Pulwama war scare. Another major increase was the Rs 400 billion increase in debt servicing, which happened both because the decline in the dollar-rupee parity led to an automatic increase in the rupee payments needed to service dollar-denominated debt, and because the government had to engage in money creation to plug the holes in the budget.

Perhaps the biggest failure was raising revenue. Pakistan’s problem was not so much one of increasing expenditures, but of falling revenues. There was simply not enough money raised to meet the expenses of the government. It perhaps was no help that the budget for the year was presented initially by the PML-N, the fiscal year inaugurated by a caretaker government, and the PTI first had a Minister supervising matters, but ended the year with a PM’s Adviser. Not only are deficits bad for the economy, and cuts in development expenditure bad for growth, but the government has committed to the IMF to cut its budget deficit. The PTI seems to rely on IMF conditionalities to serve as economic policy. Cutting the deficit may entail even more draconian taxation measures.