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Pakistan’s new government announced yesterday a 10% increase in defence spending a week after taking office, despite a crippling budget deficit of 8.8%. |
The budget for fiscal year 2013-14, which begins July 1, comes against a backdrop of weak economic growth, high inflation, dwindling foreign exchange reserves and unprecedented power cuts.
But the new budget earmarked Rs627bn ($6.3bn) for defence, a 10% increase compared to Rs570bn in the outgoing year, ending June 30.
Prime Minister Nawaz Sharif took office last week after winning the May 11 elections, which marked an historic transition of democratic power in a country ruled half its life by the military.
The military is the most powerful institution in Pakistan. Sharif has in the past had troubled relations with the army, which in 1999 deposed him in a bloodless coup.
Finance Minister Ishaq Dar told the national assembly that the government would clear $5bn in circular debt from the energy sector within the next 60 days.
“This will greatly help minimise power cuts in the country,” Dar said, giving no details on how the government would find the money to pay the bills.
Years of mismanagement, under-investment and corruption cause blackouts of up to 20 hours a day in blistering summer heat, when temperatures reach up to 50 degrees Celsius.
Pakistan is still paying off a $11.3bn International Monetary Fund loan from 2008. Analysts believe the government must return to the lender to stave off a balance of payments crisis.
“Our government has chalked out a comprehensive reforms programme for economic development, which will control inflation, build the revolutionary change in the country’s infrastructure and provide employment to youth,” Dar said.
Again, he provided no precise details.
He promised that the government would reduce the budget deficit by 2.5% in the forthcoming year to 6.3% and to 4% within three years.
“The key point of our budget this year is to reduce the fiscal deficit and prevent the national economy from being adversely affected,” the minister said.
On Tuesday, he unveiled figures that showed the outgoing government had fallen below target in virtually every economic indicator.
Dar said GDP in the outgoing fiscal year was 3.6% compared to a target 4%.
The government has set a new target growth of 4.4% for the coming fiscal year.
He said that the fiscal deficit which had run to 4.7% would be curtailed by his government through “strict financial discipline”.
Dar promised to solve the disrupted payment cycle which has crippled the energy sector with daily power outages from 16 to 18 hours.
“We want to do it in minimum possible period and just finishing off this debt will not solve the problem unless we reduce our line losses or thefts which were more than 30%,” Dar said.
The government had set a target of 8% for inflation in the next financial year, he added.
“We are a business-friendly government, but we will not allow industry to make undue profits as it burdens the poor,” he said, promising a “corruption-free” government to provide a conducive economic environment.
Dar said that he had no option but to get fresh loan to pay old ones.
“There is no money to make heavy debt repayments by December and I think that in this situation, there is no harm in taking more loan to repay old debt,” Dar said.
Pakistan has suffered several years of weak economic growth and its currency has slid in value while foreign exchange reserves have dwindled.
The country is still paying off an $11.3bn International Monetary Fund loan from 2008. Analysts have said it will need to go back to the lender for more to stave off a balance of payments crisis.