Bringing down huge fiscal deficit and massive debt burden is the toughest challenge faced by fiscal managers of Pakistan. The solution is to increase resources and reduce spending but there is no political will to do it. From 2007-13, Pakistan’s fiscal policy remained under immense pressure owing to missed targets by the Federal Board of Revenue (FBR), continued security related issues, greater than targeted subsidies, flood related expenses and global financial crisis. The government borrowed heavily from external and internal resources in order to finance the fiscal deficit, due to which a huge amount of money was paid towards debt servicing, almost 66 per cent of tax revenues in fiscal year 2012-13.

According to official claims, the fiscal deficit for the second quarter of the current fiscal year has been capped at one per cent as compared to 1.5 per cent in the comparative period of last year. In the cumulative first half of fiscal year 2013-14, it is claimed that "the fiscal deficit reduced to an impressive 2.08 per cent versus 2.73 per cent in the first half of FY2013". A press report, however, suggests that the government was "able to show an exceptional fiscal performance in the first half of this fiscal year as a result of smart accounting". The report unveils that the federal government "reflected an unprecedented increase in income from the State Bank of Pakistan (SBP) and the Water and Power Development Authority (WAPDA) instead of showing any belt tightening".

In the first half of the current fiscal year, the federal current expenditures were Rs1376 billion. It exposes the claims of tightening of belt. In fact, Finance Minister Ishaq Dar misinformed the Parliament that "stringent spending controls and implementation of austerity measures have helped in containing the fiscal deficit". The same is true for non-tax revenues, estimated at Rs822 billion. "The government showed about three-fourth of the annual SBP profit in just six months," reveals the press report. It further says that "it has never happened in the past that the SBP gave 73 per cent of its estimated annual profit in just six months." The cash-based accounting system, the report says, "can easily be manipulated and this is what has been done".

Besides understating fiscal deficit, the government also resorted to cut development expenditure by not disbursing the allocated funds during the first half. For the current fiscal year, the Parliament approved development budget of only Rs540 billion. However, the government released only Rs120 billion or 22 per cent of the annual budget in the first half.

The federal government has failed to notify the size of the next year’s development budget to parliamentary committees. In June last year, the National Assembly unanimously amended its Rules of Procedure and Conduct of Business to empower standing committees to scrutinise the budget before presenting it in the house. Interestingly, the amendment was moved by Anusha Rehman Khan, who is now minister of state for information technology. This shows how rules and regulations are violated by every party in power.

Another ploy used by the government to show surpluses on the part of the provinces was late and less distribution of funds from divisible pool. From July to December 2013, the Centre transferred Rs646.5 billion or 43 per cent of annual commitments made under the National Finance Commission (NFC) Award to provinces. Ideally, the ratio should have been 45 per cent if not 50 per cent. Due to lesser amounts given to the provinces, savings of Rs164 billion was secured helping the federal government to restrict its fiscal deficit to Rs540 billion. This is how Dar and his team hoodwinked the IMF during the second review in Dubai concluded from February 1-9, 2014 that paved the way for the release of the third tranche of $550 million under the Extended Fund Facility (EFF).

The fiscal management in the current fiscal year is no different from the last many years. Fiscal Policy Statement for 2013-14, prepared by the Debt Policy Coordination Office of Ministry of Finance in compliance of section 6 of the Fiscal Responsibility and Debt Limitation Act 2005 [FRDLA, 2005], while expressing concerns about overall fiscal scene, says "the government’s total expenditure during 2012-13 remained at Rs4816 billion against the budgeted amount of Rs4484 billion, showing an increase of 22 per cent over the last fiscal year. Almost 76 per cent of total expenditure were current expenditure, whereas, just 24 per cent were development expenditure and net lending. Current expenditure increased by 15 per cent, whereas development expenditure registered partly increase of 6 per cent during 2012-13. During 2012-13, public debt servicing reached Rs1209 billion against the budgeted estimate of Rs1178 billion. This year, it will be more than Rs1500 billion against the allocated amount of Rs1154 billion.

In addition to enormous increase in current expenditure, especially debt servicing, the real problem is persistent failure of the FBR in meeting revenue targets. During 2012-13, the FBR collected only Rs1936 against the target of Rs2381 billion, a slippage of 19 per cent. This left the government in a difficult situation as it had to rely on borrowings, predominantly domestic, to meet its financing requirements -- interestingly the FBR officialdom received bonuses and the Parliament never took any action against them. This year’s target of the FBR was Rs2475, which is now slashed to Rs2345, but even then the Chairman says "it not collectable".

Debt Policy Statement 2013-14 issued by Debt Coordination Office of Ministry of Finance in compliance of section 7 of FRDLA 2005, concedes that "with drying up of external financing, the onus of financing fell entirely on domestic sources -- specifically the banking system. The government borrowing from domestic sources in 2012-13 was actually higher than the overall fiscal deficit as net external debt payments had to be paid from domestic sources owing to insufficient fresh external inflows.

The Fiscal Responsibility and Debt Limitation (FRDL) Act, 2005 approved on June 13, 2005, requires the federal government to ensure that within a period of ten financial year, beginning from the first July, 2003 and ending on 30th June, 2013, the total public debt at the end of the tenth financial year does not exceed 60 per cent of the estimated gross domestic product for that year and thereafter maintaining the total public debt below 60 per cent of gross domestic product for any given year. Public debt to GDP was recorded at 62.7 per cent as on June 30, 2013. Debt Policy Statement 2013-14 says "crossing of this threshold by 2.7 per cent was mainly due to the actual deficit being higher than projected".

All economists are unanimous that from 2007-13, no concrete measures -- both at federal and provincial levels -- have been taken to foster fiscal discipline. Resultantly, borrowings from banks have increased manifold. The unabated borrowings to meet burgeoning budgetary deficit is sinking the economy. One of the major weaknesses of economic governance is unchecked wasteful spending on monstrous government machinery and inefficient public sector enterprises. Our foreign debt is going to be US$75 billion in 2015 and domestic debt Rs20 trillion if immediate curative measures and tough decisions are not taken -- for which solutions are available but political will is missing.