Fis­cal gap

The Pak Banker - - FRONT PAGE -

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.

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