Mounting circular debt and reduction in development expenditures manifests significant threat to the country’s economy – Mahfooz Elahi

  • January 21, 2011
In the wake big economic crunch, Government must put a check on its non-developmental expenditures and stop extravagant spending to reduce the gap between revenue and expenditures.

High fiscal deficit and rapid increase in circular and foreign debt that have doubled in the last three years, demand strict fiscal measures and reduction in the developmental expenditures by the government, Mahfooz Elahi, President of Islamabad Chamber of Commerce & Industry has said, addressing a meeting at ICCI. 

He was of the view that phenomenal increase in debt has posed serious challenges and threats to Pakistan's future. Circular debt has become one of the biggest challenges as cumulative circular debt has risen to Rs.584 billion and was expected to touch Rs.781 billion by the end of the FY11, he observed.

ICCI President said that a major source of employment and growth in the country is the Public Sector Development Programme (PSDP). In the last four fiscal years, instead of cutting non-development expenditure the government resorted to large cuts in the PSDP, bringing it to a level of less than 3 per cent of the GDP.

He said government has projected GDP growth target of 4.1 percept for the fiscal year 2010-11, but without resolving circular debt and power crisis, achieving this target will not be possible.

Circular debt issue is one of the main hurdles in attracting foreign investment in energy sector despite having huge potential and it would cause prolonged power outages. The industrial activity has badly affected, and industries are running far below the capacity due to inconsistent power and gas shortage.

ICCI President emphasized that government should realize that Pakistan cannot afford lavish spending and must take corrective measures to resolve this issue to save the economy. 

Mahfooz proposed that government through audit and evaluation should close down non-productive government departments to curtail expenditures and in the next year budget instead of cutting down Development Budget, other sources of revenues should be found for better fiscal management.