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Where did the money go?

Jun 04,2017 - Last updated at Jun 04,2017

Where did the money go, was the sensitive question asked by an outspoken activist. 

It gained popularity due to its implied accusation of corruption.

In fact this is a wrong question and should be reversed.

If the government is spending more than its revenue, which is causing the acute budget deficit, the above question should not be: where did the money go. It should be where did the money come from, and why does the government continue to spend money it does not have?

The answer to the first question is simple. The government spends the money on salaries, pensions, medical and education services, the army and the security apparatus, roads, bridges, dams and subsidies on bread, cooking gas, electricity, fodder, the National Assistance Fund etc.

Those interested in exact amounts and details can refer to the budget tables that the Ministry of Finance publishes on monthly basis. They show where the money goes.

The answer to the second question, which is where the money came from, is simpler: the money comes from borrowing.

The government is borrowing to spend. It undertakes commitments in excess of its revenue, including foreign aid, on the assumption that somehow, the financial situation will be reversed in the future and revenues will exceed expenditure.

The debt will be repaid from the budget surpluses is the assumption that is completely wrong.

Three problems need to be highlighted.

The first is that achieving a surplus in the budget in the foreseeable future is next to impossible, no rational person believes such an assumption.

The result is that debt continues to accumulate, reaching 95 per cent of the gross domestic product, or 300 per cent of the total annual budget.

The second problem is lack of popular awareness about the danger of budget deficit that is covered by borrowing year after year.

If we fail to remember out financial crisis of three decades ago, we should, at least, learn from the recent financial crisis and economic instability in some European countries like Greece, countries we thought at one time to be advanced, rich, democratic and backed by the European Union.

Hopefully the government is aware of the risk involved. At least, it does not try to play down the danger.

Public awareness about the risk involved should help the government continue its economic reform programme agreed upon with the IMF.

Reform measures are unpopular and difficult to take, but bitter medicine may become acceptable when the patient knows that the alternative is worse, much worse.

A third problem is worth mentioning. The government encouraged the people to focus on demand; the government is always under pressure to provide more services and charge less taxes.

When officials meet with the people, there are always costly demands by the people and promises by the government to oblige to the extent possible.

 

No one cares to tell us where the money comes from.

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