Whether you run a large business, a small business or are responsible for your own family budget, I am sure you understand the necessity for balancing the budget each month.
Too many months where the expenses are more than the income creates serious problems for businesses or families, with the need to access additional funds from other sources. These sources may be loans, savings or funds may be accessed through the liquidation of assets. This is assuming that you have some assets in reserve or the capacity to borrow.
Seems simple and logical enough, doesn’t it? As I often like to say, life is pretty simple but some people choose to complicate it. The same applies to balancing the budget. In theory, the money coming in must be more than money going out or at least equal to it. If you can achieve that, your budget would be in balance.
Despite being that simple, this financial concept has not been understood by those responsible for our national budget for a long time. Our country’s expenses have consistently been more than the revenue that is raised from various sources thus leading to a budget deficit on a regular basis. Put simply, the governments have been spending more than what they raise in taxes and through other means and as result creating budget deficits.
Every few years the accumulation of deficits results in the need to seek funds from the IMF and other sources, which come at a significant cost to the country. All these borrowed funds come with “interest”, after all there is no such thing as a free lunch. In addition, the IMF imposes a number of other conditions on us which end up causing pain and suffering to the citizens of the country.
In a country where most people consider interest to be “haram” and choose to keep their funds in non-interest bearing accounts, it may come as a shock to most of you that the country’s finances are being run on the basis of borrowed funds with interest being paid to the various lenders. While many of you choose not to earn or pay interest, our government has no qualms about it.
In case you missed reading the hundreds of pages of budget papers, I am happy to share a few key aspects of the 2017 budget with you:
- Total Budget expenditure is approx. PKR 4.9 trillion
- The budget deficit for 2017 is approx. PKR 1.3 trillion (which has to be financed through borrowings that attract interest)
- Defence expenditure is PKR 860 billion
- Health budget is PKR 12 billion
- Education budget is PKR 84 billion
- The interest cost or as it is described in the budget, the “mark up” amounts to PKR 1.36 trillion. This represents almost 40 percent of the government’s current expenditure for the year. This amount is in excess of the defence, health and education budgets combined. Amazing, isn’t it?
Note: The above information is based on the federal budget and excludes provincial budget allocations.
So, the biggest expenditure item in the 2017 budget is “interest”, not defence or education or any other services for the citizens. But interest on loans borrowed.
The budget situation does not seem to get better and the recent governments have certainly not attempted to reduce debt or develop a coherent strategy to improve the overall budgetary situation. Things keep going from bad to worse but has anyone been fired over it? Are there any consequences for those involved in the budgetary process year after year?
For example, if a public company repeatedly failed to deliver on its financial forecasts and kept accumulating more and more debts each year, what do you think is likely to happen to the CEO, CFO and even the Board of directors? They will all be fired.
Why should the same or even a stricter level of accountability not be applied to the government of the country?
It’s not just about the government either. The opposition parties also have a role to play in keeping those in power accountable. We hear more about the personal finances of the Prime Minister and his family than we do about the state of our national budget. Both are important issues but one makes for more colorful television than the other.
Our country’s budget is not only offlane balance, it’s totally out of alignment. It would not be fair to blame any single government for this fiscal mess as this represents many years of neglect. However, recent governments have not even attempted to address this structural imbalance in the budget. Some tough decisions were needed to improve the situation but no one has been willing to tackle the structural problems and we have going deeper and deeper into financial abyss.
Sit back and think about the ridiculous situation where only PKR 12 billion (in the federal budget) has been allocated for health, PKR 84 billion for education and contrast this with the 1.3 trillion budgeted for interest costs.
Our elected governments need to start taking action to address the structural issues with our national budget and ensuring the revenues and expenditure match. Not only that but they need to ensure that priority areas such as health and education receive the right amount of funding.
At the same time, we the people need to accept that some tough choices may be required. Given the state of the budget, correcting things will not be easy but it’s about time that someone took the first step.
Just think about the fact that if your family’s or business’ budget was in such a state, how painful it would be for you to deal with it. That said, you would have no option but to make the hard choices. The same applies to our national budget. Perhaps, the next budget will begin the improvement process.
Amer Qureshi is a chartered accountant, international author and a management consultant.