Development spending

It is no secret that the government is facing a serious revenue shortfall. Our budget deficit for the last fiscal year was a staggering Rs2.26 trillion – equal to 6.6 percent of GDP and the highest it has ever been in our history. The PTI government came into power promising austerity to bridge the deficit. The problem with that, however, is that a significant decrease in government spending, particularly in infrastructure and development projects, removes a stimulus that the economy badly needs. Yet this is exactly what the government is doing as data from the Planning Commission of Pakistan shows that money released to the Public Sector Development Programme has decreased by more than 40 percent as compared to the corresponding period last year. The comparison is slightly misleading since the PML-N government had massively ramped up development spending in the hope of securing re-election but it nonetheless represents a significant cut to development spending. Given that the current government has promised to set up a welfare state, build five million new houses and undertake massive infrastructure projects, it is impossible to square its rhetoric with the reality.

The PTI government is in a difficult position. The three largest items in the budget are debt servicing, defence and development. The first two are off-limits for various reasons, leaving only development to find savings. But the problem is also partly of the government’s own making. It has been as ineffective as others at widening the tax net, and has shown no appetite for confronting the business and industrial elite to crack down on tax dodging. Now that it too has approached the IMF for a loan, the one thing we can expect are further increases in regressive indirect taxes and removal of power subsidies – which will end up hurting the same people who would most have benefited from development projects. When it came into power, the PTI gave the false impression that it could bring spending under control by cutting down on the prime minister’s expenses, auctioning off his cars and turning official buildings into museums and schools. The reality was that these savings did not even amount to a rounding error in our debt. The government was either going to have to increase exports to such an extent that it lead to a massive revenue influx or cut major development programmes. Since it has had little success in increasing exports, it seems to have has chosen to try and balance the budget on the backs of the poor.