With cash crunch, govt has eaten away private sector's share in bank loans.
Under the mechanism, post-18th Amendment, all provinces cumulatively receive 57.5% of funds from the federal divisible pool, while the centre gets the remaining 42.5%.
However, the spending ratio between the federal government and the four provinces is 60:40. This was never anticipated by Islamabad, but it has given an excuse to the federal government to tap additional revenue sources. Thus, loan-seeking and bond issues have become perpetual for public finance managers in the federal capital.
With cash crunch, PSO's bank borrowings reach Rs130b
The federal government, unable to increase revenues and control its spending, has opted for heavy loans at high mark-up rates. The state has eventually become the largest bank borrower, leaving very little credit for the industry for the short and long term.
According to Federation of Pakistan Chambers of Commerce and Industry former president Zubair Tufail, though the mark-up rate is low at 6%, loans are not abundantly available.
A team of the International Monetary Fund (IMF), which visited Islamabad for a fortnight in December, also examined the issue. Along with officials of the finance ministry, the IMF team members assessed the scale of the problems caused by it.
The trouble caused by the tendency of the federal government to increasingly borrow from banks in view of the new formula of divisible pool is now the focus of a fresh study initiated jointly by the IMF and the finance ministry. This study may lead to an urgent revision of the entire IMF-assisted structural reforms process in Pakistan.
The federal government, as explained to the IMF team, was bound to look for loans to meet rising expenditures at a time when foreign exchange reserves were falling fast and tax and non-tax revenues were growing slowly.
With this twin jeopardy, the government has fallen into a debt trap while causing irreparable loss to the industry and restricting the industrial growth.
Countries drifting towards evident or virtual default in such a situation have no history of ever being rescued once state spending via loans causes industrial decay, leading to drying up of foreign exchange reserves and tax revenues. The IMF team, visiting primarily for an appraisal of the structural reforms, was compelled to advise the following: spending beyond the federal and provincial budgetary sources and failure to improve exports and revenues need the utmost attention. It also asked Islamabad to prepare a report and determine the impact of 18th amendment for sharing the divisible pool.
The growing state-economy conflict in Pakistan
Lenders can propose structural reforms which Pakistan is always shy of undertaking. These reforms are meant to check corrupt practices and make the system transparent.
A public debate can be initiated on the issue and it should start from inside the parliament building. The most probable place to start such a debate is the Public Accounts Committee. Certain members of the committee have been demonstrating the skills of monitoring the budget abuse. The divisible poll formula has forced the federal government to commit the biggest budget abuse.
If the growing debt is really caused by overspending and misspending, then the habit of finding an excuse for obtaining expensive heavy loans is criminal. If we keep sleeping over this issue, there is no force that can prevent Pakistan from default. The consequences of this drift would be unmanageable.
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|Publication:||The Express Tribune (Karachi, Pakistan)|
|Date:||Jan 23, 2018|
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