The government during the past two years massively increased its reliance on domestic borrowing as multilateral and bilateral donors curtailed programme/budgetary support due to the failure of the government to implement the agreed power sector and taxation reforms under the International Monetary Fund's (IMF) 2008 Stand-By Arrangement. Foreign donors requested the government to either implement reforms or get a letter of comfort from the IMF before the country would become eligible for budgetary support again; however, at this point in time it has been unable to do either. The Minister of Finance, Dr Hafeez Sheikh, has indicated that the government is considering another IMF loan and its approval by the Fund's Board of Directors would be contingent on the government's acceptance of the new, what many believe would be harsher conditions. Many also argue that a new IMF loan package and its associated conditions must be negotiated after the new elected government has been installed.
The government needs to focus on reducing its heavy reliance on borrowing domestically; however its focus at present remains on the forthcoming elections and money not budgeted is being released to parliamentarians for development projects, for bailout packages of state-owned and autonomous entities as well as for enabling the Pakistan State Oil to pay for critical oil imports given that the inter-circular debt issue remains unresolved.
The budget documents for fiscal year 2012-13 estimate total taxes collected for the current year at around 2,504 billion rupees and 60 percent of this amounts to around 1,502 billion rupees. However, the budget documents envisage domestic debt servicing for the current year at 846 billion rupees or around 656 billion rupees less than the figure quoted by the Ministry of Finance sources. In other words, the budget figure for domestic debt servicing repayments was considerably less than the actual. It is also relevant to note that there seems to be no check and balance to ensure that domestic debt is not allowed to burgeon with its negative implications on the rate of inflation and on domestic productivity as borrowings by the government crowd out private sector borrowing.
This publication has consistently and persistently brought it to the notice of the economic leadership that presenting unrealistic figures at any forum but especially in the budget does not serve anyone's purpose including the government's own. As matters stand today the day after the budget is presented its data is challenged by the media in the traditional post-budget press conference as it is by bilaterals/multilaterals on which the government is relying increasingly for balance of payment (BoP) as well as budgetary support. The release of unrealistic and/or doctored figures also does not provide any reprieve for the beleaguered Ministry of Finance officials as few lend credence to them and in this context it is appropriate to recall that the Federal Finance Minister's cabinet colleagues have also begun to openly challenge the data his ministry presents during cabinet meetings.