Pakistan has announced a “debt-driven” and “defense-laden” federal budget for the 2018-19 fiscal year that shows current expenditure swallowing up the entire national revenue and leaving virtually nothing for social development and the public sector.

The budget documents reveal that half of the year’s federal outlays will go to defense and debt-servicing liabilities, while the government will need to sign fresh loans worth Rs 1.89 trillion (US$16.4 billion) to offset the budgetary deficit and make budgetary projections realistic and achievable.

Newly appointed Finance Minister Miftah Ismail, who was promoted to the post at the last minute, announced the budget of the outgoing Pakistan Muslim League-Nawaz (PML-N) government on Friday amid raucous resistance from opposition parties, which wanted it to present a three-month budget instead of a year, saying the PML (N) was not mandated to cover the longer term.

With a total outlay of Rs 5.9 trillion ($51.3 billion), the budget projected tax and non-tax revenue of Rs 5.7 trillion ($49.6 billion). The provincial share in the divisible pool (revenue pooled for distribution among federal and provincial governments) is estimated at Rs 2.6 trillion ($22.6 billion) leaving Rs 3.1 trillion ($26.96 billion) at the disposal of the federal government to run the military and civil administration.

Out of total revenue of Rs 3.1 trillion (close to $27 billion), the government has to finance outlays of Rs 4.2 trillion ($36.5 billion), which will result in a whopping fiscal deficit of over Rs 1.1 trillion ($9.57 billion) in running expenditure alone. The budget development component is pitched at Rs 1.67 trillion ($14.5 billion), which will exert further pressure on revenue and widen the resource gap.

42% to pay back public debts

The single biggest chunk of funding was allocated for debt liabilities. The need to pay back huge public debts has paralyzed the national economy. Some Rs 2.22 trillion ($19.3 billion) has been stipulated in the budget for that, which is over 42% of the total budgetary outlay of Rs 5.25 trillion ($45.6 billion).

The defense allocation is next biggest with Rs 1.1 trillion ($9.57 billion), an increase of 20% over the budget for the 2017-18 fiscal year. Another Rs 100 billion ($869.57 million) was proposed for the Armed Forces Development Program (AFDP), and another allocation of Rs 260 billion ($2.3 billion) will be made from the civilian budget for the military pensions, which are not included in defense spending. That means real and “camouflaged” defense-related outlays make up 38% of budget outlays.

Pakistan’s defense minister claimed on Monday that the “challenging security environment” and “economic determinants of security” necessitated a hike in defense spending. However, independent military analysts believe that ongoing military-led operations in tribal areas, plus the deployment of rangers in the Sindh and Punjab, security for the China-Pakistan Economic Corridor (CPEC) and tension on the Line of Control (LoC) with India, spurred the huge outlays.

During the outgoing fiscal year, the federal government spent over Rs 18 billion ($158 million) on fencing the Pakistan-Afghan border to try to stop cross-border infiltration by terrorists and Rs 10 billion (nearly $87 million) on raising a special security division to protect Chinese workers on CPEC projects.

A highly placed source at the Finance Ministry told Asia Times the Trump administration’s new regional strategy for South Asia has led to a cut in US security assistance funding. The changed US approach had intensified the Pakistan army’s financial woes, he said, and put pressure on the national kitty.

Cash for religious fanatics

He said Rs 4.5 billion ($39 million) in “extra-budgetary grants” would go to the Inter-Services Intelligence (ISI) for “strategic assignments” but could not explain what these were. However, last year the ISI distributed cash envelops among religious fanatics such as the Tehrik-e- Labaik party, which staged a sit-in in Islamabad. A number of religious outfits both in and outside the country are believed to be on the ISI payroll and it has an unaudited account at its disposal.

The defense budget includes Rs 423 billion ($3.7 billion) for salaries, Rs 253.5 billion ($2.2 billion) for operating expenses, Rs 282 billion ($2.4 billion) for local and foreign purchases, plus Rs 141 billion ($1.2 billion) for civil works.

Revenue constraints are such that the government has halted payment of an export rebate on sales and income tax to exporters. The Federal Board of Revenue suddenly declined to entertain refund claims from exporters, saying there were no funds allocated for that in the budget. That caused the Federation of Pakistan Chamber of Commerce & Industry (FPCCI) to lodge a protest with the Finance Ministry on the issue.

FPCCI president Ghazanffar Bilour told the Asia Times: “Yes, we will approach the Supreme Court if the government fails to pay the outstanding export refunds on sales and income tax worth Rs 400 billion ($3.48 billion), as are we left with no other option but to initiate legal proceedings for the recovery of our legitimate dues.”

Finance minister to discuss export rebate

He said the refund had become a serious issue because there were no concrete measures to resolve exporters’ grievances in budget proposals unveiled by Finance Minister Miftah Ismail on Friday. Rather, the refunds anomaly was deferred, which would hurt exports and cause financial losses for exporters, who already face a dire liquidity crunch.

Asked how he would define the budget, Bilour said: “The budget proposals carry many good measures but the widening trade gap is a serious issue which will become alarming if the government does not give refunds to exporters.”

He warned that many export-oriented industries would stop production and unemployment would increase if the government did not fix such anomalies.

Bilour said the new minister had invited FPCCI to Islamabad to sort out budget-related issues. So, they would form an ‘anomaly committee’ in consultation with member chambers and trade associations by Thursday to meet him. And the government would also set up a budget anomalies committee to look into exporters’ problems, he said.