imbalance in Pakistan's development and non development expenditure

1. IMBALANCE BETWEEN
DEVELOPMENT AND NON
DEVELOPMENT EXPENDITURE

2. Current expenditure
Current expenditures are those expenditures which a government uses to
currently fulfill the needs and demands of the public.
Current expenditure is a purchase from national account by government
to meet the need of masses collectively for the time being.
Current expenditures include
 Defense
 interest payments
 expenditure on law and order
 public administration etc.
the current expenditures do not create any productive assets which can
bring income or returns to the government are non-development
expenditure.
The increase in current expenditures is considered as the biggest problem of
the country after inflation.

3. • Pakistan’s economy has GDP growth of 4.2
percent in FY2014/15 as in FY2013-14 it was 4.0
percent.
• .
• This limitation relies only on 1.3 percent of GDP
decline in current spending while development
spending is expected to increase by 0.3 percent
of GDP.
• In terms of GDP, federal development
expenditures are budgeted to increase from 2.0
percent of GDP in FY2014/15 to 2.3 percent. As
more than 80 percent has been allocated under
the budget 2015/16 Public Sector Development
Programme (PSDP).

4. Interest Payments
• Interest payments include interest payments on government debt
including long term bonds, long term loans and other debt instruments to
domestic and foreign people.
• In Pakistan for the fiscal year of 2009‐10 about 31 percent of total
revenues were consumed for the payment of the national and
international debt.
• On June 30th, 2014 it was estimated that Pakistan’s public debt stood at
63 percent of GDP.
• The domestic debt of Pakistan is higher because of three main reasons:
1. because of its security and economic problems, Pakistan does not have
an easy access to relatively inexpensive financing from international
financial markets.
• (ii) Budget support from international donors remained hanging for a long
time period because of the unfavorable fiscal situation
• (iii) For the government, the fiscal cost of borrowing from the central
bank has large interest rate which imposes a huge cost on the economy.

5. • On the average, more than 53 percent of federal
government’s expenditure is on interest
payments on debt, defense spending and salaries
and compensation.
• According to the World Bank Pakistan Interest
payments are 34.12 which were measured in
2013.
• In the fiscal year 2015 Pakistan is overloaded
with permanent and floating debts.
• The extreme cut in interest rates in the second
half of the fiscal year 2015 had an impact on the
coupon rates reduced in the Pakistan Investment
Bonds.

6. Grants
• The federal government transfers some
amount to the provinces in the form of grants.
In the fiscal year of 2009-10 the federal
government transferred Rs. 82 billion to
provinces.
• The federal government picks a bulk of losses
by giving grants from the budget to State
Owned Enterprises (SOEs) which were
declining. E.g. PIA Pakistan steel miles

7. Subsidies
• Subsidies are the benefits which are given by the government to
groups or individuals usually in the form of a cash payment or tax
reduction. The subsidy is usually given to remove some type of
burden and is often considered to be in the interest of the public.
Subsidies, grants, and other social benefits include all unreturned, no
repayable transfers on current account to private and public
enterprises.
• According to the World Bank in Pakistan the last measured of
subsides was 16.66% in 2013.
• In the fiscal year of 2008 when internationally the prices of oil
increased sharply the government then increased subsidies on oil
and electricity.
• The Federal government’s expenditure about 29 percent is on
subsidies and grants mostly including subsidies on electricity and oil
has greater than before as from 1 percent of GDP in FY 2002 to more
than 2.5 percent in FY 2014.

8. • In Pakistan during the FY of 2009‐10 the government
subsidized the power sector by a large amount. Out of a
total subsidy of 83.8 percent were granted to WAPDA and
KESC.
• Some of the recent examples of subsidizes from the
government are: the government of PML N has started the
direct subsidy that will be given to the poorest families of
the province through Punjab Khidmat Card Programme. As
the Punjab Khidmat Card is a public welfare and
revolutionary programme of the government under which
Khidmat Cards are issued to the poorest families for their
financial assistance while education and health facilities
are also provided through these cards under a phased
programme.
• The Ramadan the government gave subsidies for the
general public of Rs 6 billion through the Utility Stores
Corporation. In the fiscal year of 2007‐08 24.7 percent of
revenues were used up in providing subsidies in Pakistan.

9. Defense
• The geographical, political and strategic position of any
country on the map plays an important role in the allocation
of defense expenditure .
• As Pakistan is enclosed with threats and the government
cannot ignore defense expenditure no matter whether they
are developed or not.
• Due to the disputed territory of Kashmir Pakistan faced three
wars with India. As a result Pakistan has to spend a larger
share of GDP on defense.
• The defense expenditure of fiscal year 2008 as a percentage
of GDP was 18.1% and in the fiscal year of 2015-16 is being
increased to 780 billion (US $7.8 billion).
• The defense expenditure is necessary because of the
National Security of the country.
• The defense expenditure was being increased in view of the
security situation and requirements of the armed forces

10. OVERVIEW
• In case of Pakistan it seems that non-development expenditure is out
of government’s control. Tax collecting agencies are the main hurdles
in tax returns submission, adding that tax collection could increase by
Rs1, 500 billion by creating clarity in taxation system and eradicating
corruption. Reduction in expenditures and increase in income
directly benefited the public.
In Pakistan income is being spent on subsidy, defense and interests on
debt payments while the government needed loans to run other
affairs.
• The disparity between income and expenditures is upsetting
development. Government has to play a vital role by making policies
for reduction in non-development expenses and foreign loans besides
eradication of corruption for which effective taxation system is
required.
• Pakistan has to spend a larger share of GDP on defense. One of the
biggest challenges is to reallocate the resources from defense
expenditure to social development in order to reduce poverty, hunger
and preventable diseases.
•

11. DEVELOPMENT EXPENDITURE
• expenditures that promote economic growth and
development.
• expenditure on infrastructure development.
• In the fiscal budget 2014-15 Infrastructure has
the biggest priority in the development budget.
• Infrastructure has to receive the highest 55 %.
• highways together with power projects are
projected to make up 70 percent of the total
infrastructure allocation

12. • create balance between revenue and
expenditures to help the governments to avoid
high deficits.
• of unplanned expenditures
 floods,
 security related issues,
 high interest payment,
 untargeted subsidies
 expected tax collection

13. • Infrastructure spending is considered
government investment .
• save money in the long run,
• and thereby reduce the net present value of
government liabilities.
• government spending on social infrastructure,
such as preventative health care, can save
several hundreds of billions of dollars per year
in Pakistan

14. • For the FY2015/ 16 total PKR 43 billion has
been allocated for development projects in
special areas of Azad Jammu and Kashmir
(AJK),
• Gilgit Baltistan (GB),
• Northern Areas
• and Federally Administered Tribal Areas (FATA)
• those are otherwise not included in the
resource distribution framework of the
federation

15. • An interesting question arises how a developing
country like Pakistan where masses are subject to
absolute poverty can afford such a heavy
expenditure on defense?
• What impact the military expenditure exert on
poverty?
• Is the military expenditure pro poverty or anti
poverty.
• It is hypothesized that military expenditure is
positively associated with poverty. Two thoughts
are central in the literature. Some believe that the
military expenditure has very strong positive
relationship with the growth of the economy.
Others disagree that military expenditure is
negatively related to the growth of the economy.

16. • To provide aids to the poor public the development
expenditure can play very important role. The government is
borrowing heavy amount for non-development expenditures
like army operations and debt servicing that should be
directed to development expenditures like investment in
energy.
• The government needs to reduce subsidies and cut its non-
development expenditures. The government must bring
down inflation and creates fiscal space to overcome major
economic problems. Due to the government debts and
borrowing from external sources the fiscal deficit is pushed
up. As presently the government is heavily spending on army
operations and debt servicing which are all non-development
expenditures. Until the government start spending on
development expenditures the country cannot achieve her
manufacturing growth and investment will automatically
come into the country which will result in reduction of
inflation.

17. • If the government increases the development
expenditures it will be helpful in the economic
growth of a country. It will generate
employment opportunities, rotate capital in
the economy and will create development
activities etc. the most important initiative the
government must take is the establishment of
basic infra structures of the country that acts
as a catalyst for the domestic and foreign
investments.

18. • Trends in components of expenditure

19. Conclusion
• The government needs to reduce subsidies and
cut its non-development expenditures.
• Due to the government debts and borrowing
from external sources the fiscal deficit is
pushed up.
• Until the government start spending on
development expenditures the country cannot
achieve her manufacturing growth.
• The government must increase the tax to GDP
ratio in the long run and increase its capacity to
spend on development projects.

20. • If the government increases the development
expenditures it will be helpful in .
economic growth of a country.
 It will generate employment opportunities,
 rotate capital in the economy
 and will create development activities etc.
• Pakistan’s long term productivity is declining.
• Our study concludes that discrete spending
will stay insignificant in Pakistan until its
current expenditures are too high as
compared to development expenditures.