Annual Report 2010 - Ministry of Finance and Planning

2 | FISCAL DEVELOPMENTGovernment ExpenditureTotal government expenditure in2010 amounted to Rs. 1,280,205million, an increase of about 6.5percent over the previous year. As inthe previous years, the governmentexpenditure was directed towardscontinuing areas vital in maintainingsocial standards of the country andcontinuing much needed investmentsto spur economic growth in themedium to long run. Accordingly,the recurrent expenditure increasedmoderately by 6.5 percent to Rs.937,094 million in 2010. However,as a percentage of GDP, recurrentexpenditure declined significantlyto 16.7 percent from 18.2 percentin 2009 reflecting the efforts torationalize recurrent expenditure.Meanwhile, government was ableto maintain public investment at6.4 percent of GDP reflecting itscommitment to resolve infrastructurebottlenecks in the country,particularly by continuing themomentum gained in respect of keynational infrastructure developmentprojects while implementing regionaland rural infrastructure developmentprojects as well.Recurrent ExpenditureIn 2010, although the total recurrentexpenditure increased, the recurrentexpenditure excluding interestpayment and salaries & wages innominal terms declined by 5 percent.This complemented the governmentefforts in rationalizing the recurrentexpenditure.Interest Cost: The interestexpenditure, the largest singleexpenditure item in the recurrentbudget, was Rs. 352,592 million,recording an increase of 14 percentover the last year and accountedfor 38 percent of the total recurrentexpenditure. However, interestexpenditure as a percent of GDPdeclined to 6.3 percent from 6.4percent in 2009. More importantly,the domestic interest payments,which were increased by 8.4percent in nominal terms, declinedsignificantly to 5.3 percent of GDPdue to the favourable impact of lowinterest rate regime following thepolicy actions taken by the CentralBank to reduce interest rate in themidst of low inflation outlook. Thiswas also supported by measures torestructure the debt stock by shiftinghigh cost domestic debt to low costforeign debt. However, the spillovereffect of the enhanced borrowingsfrom the domestic sources,particularly in the latter part of 2009to provide rupee funds needed forcapital and other expenditure in themidst of significant revenue shortfalls,had a negative impact on the interestcost in 2010. Meanwhile, the interestcost on foreign debt increased by 55percent due to the increase in foreigndebt and reflecting a movementtowards a middle-income countryborrowing pattern. Meanwhile, thenon interest recurrent expenditureas a percent of GDP, declined to 10.4percent from 11.8 percent in 2009.Salaries and Wages: The expenditureon salaries and wages was Rs.300,558 million and accountedfor 32 percent of the recurrentexpenditure as the second largestsingle item in the recurrent budgetwhile absorbing 37 percent of thetotal revenue in 2010. This includesthe expenditure on providing suchChart 2.7 > Composition of Recurrent Expenditure 2010Chart 2.8 > Salaries and Wages: 2005-201010%1%4%2%4%32%30025020038%9%Rs. billion150100Salaries & wagesLosses of Railway, Postal and C.T.B.50Other Goods & ServicesInterest PaymentsPensionsAssistance to Other Statutory BodiesFertilizer SubsidyWelfare Payments and Subsidies02005 2006 2007 2008 2009 2010156