According to the latest reports, the government will be unable to limit fiscal deficit below 6 percent in the current fiscal year against the budget target of 4.3 percent due to the looming shortfall in revenue. There are also reports of higher than budgeted expenditure and little likelihood of provinces providing a surplus of Rs 347 billion in an election year. It is estimated that fiscal deficit will be around 6.3 percent this year, against the budgeted 4.3 percent. The Federal Board of Revenue (FBR) tax collection is expected to remain below target by Rs 150 billion despite claims that Rs 4013 billion target for the current fiscal year will be achieved.
At the same time, experts are of the opinion that expecting provinces to generate Rs 347 billion budget surplus during an election year is unrealistic. They also term the International Monetary Fund (IMF) projection of 5.5 percent fiscal deficit for the current fiscal year as quite lenient and too optimistic. What is more worrisome is the fact that an increase in the budgeted debt servicing is a foregone conclusion due to heavy reliance of the government on commercial borrowing to preserve foreign exchange reserves, which have been depleting in recent months due to rapid increase in current account deficit.
On the other hand, the power sector's subsidies are expected to increase significantly in summer as the expected increase in demand would compel the government to run inefficient power plants to reduce the hours of load shedding. As things stand today, load shedding has begun to swing up. This will increase the quantum of subsidies on account of tariff differential. Reportedly there are some Gencos with operating capacity of as low as 29 percent and are oil guzzlers, but the precise amount of subsidy would depend on the international price of oil and may be double that budgeted for the current fiscal year. This means that the government will have to inject Rs 8-10 billion per month as subsidy to run inefficient and oil consuming Gencos to make full use of installed capacity to deal with the expected load shedding.
Is there any possibility of government expenses being reduced? Not at all. Slashing development expenditure during elections is out of question and this is evident from the fact that the entire fiscal year's allocation of Rs 30 billon for Prime Minister's Taraqiati Programme was released in one go to parliamentarians in October 2017 to ensure completion of development project in their constituencies well before elections. The hands of the government are tied with regard to revenue generation. Experts in the know of things contend that the government is unlikely to impose higher taxes on productive sectors during an election year. It is relevant to mention here that the total number of filers has declined this year as compared to the previous fiscal year. Given our past dismal record, it is unlikely that FBR would proactively proceed against the influential people with the right connections who refuse to file returns.
It is a gloomy picture for which there is no remedy in sight. The sad conclusion is that steady increase in expenditure and shortfall in revenue as well as inability of the provinces to give budget surplus of Rs 347 billion will all combine to push the fiscal deficit beyond 6 percent. The only way for the government to control the situation is to tighten its belt and launch a strong drive to widen the tax base in the country. In this regard, there is a special need to bring agricultural income into the tax net.