EDITORIAL: Multiple disquieting news on the economic front should send alarm signals to the economic team leaders: disbursement of only 5.3 billion rupees on development expenditure in July-August or 0.5 percent of what was budgeted for the Public Sector Development Programme (PSDP) to the increase in government total debt in 2025 by 9 trillion rupees to the decision announced by Yamaha motorcycle company that it will discontinue its assembly operations in Pakistan.
While data for the September disbursement under PSDP has not yet been released yet it is unlikely that the government would be able to release the 15 percent of the budgeted PSDP allocation that it is required under the rules.
While the massive devastation caused by the floods that have not yet abated are a major factor yet what is extremely disturbing is the fact that the government’s borrowing increased manifold last fiscal year, before the June 2025 floods, which crowded out private sector credit last fiscal year, a trend that continued into July with negative 317.3 billion credit flow to the private sector.
This, in turn, contributed to negativity in the growth of large-scale manufacturing sector — a negativity that would be strengthened due to Yamaha’s decision to discontinue though reports suggest that Yamaha’s decision was a business decision, based on its very small share in the Pakistani market.
It is relevant to note that in spite of protestations by several members of the cabinet that their policies are designed to support private sector-led growth, a claim echoed by nearly all previous administrations as well, the bulk of credit from banks is used by the government to fund its current expenditure, currently accounting for nearly 93 percent of the total budget.
However, this figure is premised on PSDP budgeted the remaining 7 percent which, as noted above, is not even a remote possibility at present. In addition, the government appropriates private sector savings deposited in national savings centres for its own use, thus private savings are used not for development of inadequate infrastructure — social or physical — but for current outlays that require not only urgent reforms particularly in the case of continuing to fund pensions of government employees at the taxpayers’ expense but also sacrifice by the elite sectors to ensure that funds are used for growth.
Sadly, government debt is expected to surge in the current fiscal year with the government approval of borrowing 1.225 trillion rupees from commercial banks to retire the circular energy sector debt on the expectation that the discount rate would decline (from the existing 11 percent) and the government would be able to pass on the reduced cost of borrowing to the public in lower tariffs.
The International Monetary Fund, not quite convinced of this scenario, has interjected a clause of uncapping the 10 percent debt service surcharge cap to ensure full cost recovery. Be that as it may, the Prime Minister has publicly thanked the energy task force team leaders and indicated that they would be bestowed with national awards for this service.
To conclude, while the flood damage is overwhelming especially for a country like Pakistan with extremely narrow fiscal space to start off the year with, yet structural reforms that have the capacity to change our economic dynamics need to be expedited which must include a massive reduction in current expenditure supported by reforms in the power sector not based on higher borrowing but greater efficiency and in the tax sector greater reliance on direct taxes rather than on indirect taxes like sales tax whose incidence on the poor is far greater than on the rich.
Copyright Business Recorder, 2025
