Bud­get deficit

The Pak Banker - - FRONT PAGE -

More bad news on the eco­nomic front. Ac­cord­ing to the lat­est data, the coun­try booked the high­est-ever bud­get deficit of Rs2.26 tril­lion in the last fis­cal year due to ex­pan­sion­ary fis­cal poli­cies in an elec­tion year and poor per­for­mance of tax machin­ery, throw­ing the coun­try into a deeper debt trap. In its an­nual con­sol­i­dated fed­eral and pro­vin­cial bud­getary op­er­a­tions re­port, the Min­istry of Fi­nance has re­ported that the bud­get deficit was equal to 6.6 per cent of gross do­mes­tic prod­uct (GDP). In ab­so­lute terms, it was the high­est-ever deficit, which broke pre­vi­ous year's record of Rs1.864 tril­lion. The Rs2.26-tril­lion deficit is Rs780 bil­lion, or 2.5 per cent of GDP, higher than the tar­get set by pre­vi­ous par­lia­ment in June 2017. The bud­get deficit is equiv­a­lent to 6.6 per cent of GDP against the ap­proved limit of 4.1 per cent.

The main rea­sons be­hind the record deficit were reck­less spend­ing by the fed­er­a­tion and provinces with eyes on the 2018 gen­eral elec­tions and a steep de­cline in tax and non-tax rev­enues. The 6.6 per cent deficit was the high­est in five years of the former PML-N gov­ern­ment. This is ex­clu­sive of roughly Rs2 tril­lion in li­a­bil­i­ties that the last gov­ern­ment parked out­side bud­get books. Th­ese li­a­bil­i­ties re­late to the out­stand­ing debt of power, gas and com­mod­ity sec­tors. To­tal cir­cu­lar debt in­clud­ing the one parked in a pub­lic hold­ing com­pany has in­creased to Rs1.1 tril­lion. In or­der to bridge the yawn­ing gap, Pak­istan re­ceived a net Rs785 bil­lion in for­eign loans and Rs1.5 tril­lion in do­mes­tic loans in the last fis­cal year. Gross for­eign loans stood at Rs1.235 tril­lion. Against the bud­geted re­pay­ment es­ti­mate of Rs326 bil­lion, ac­tual ex­ter­nal debt re­pay­ments stood at Rs450.2 bil­lion.

Un­der the three-year In­ter­na­tional Mon­e­tary Fund (IMF) bailout pro­gramme, Pak­istan had com­mit­ted to grad­u­ally re­duc­ing the bud­get deficit to less than 4 per cent of GDP. De­spite fis­cal con­sol­i­da­tion and im­pos­ing new taxes, the deficit re­mained at an un­man­age­able level. Re­sul­tantly, the coun­try's gross pub­lic debt swelled to Rs28 tril­lion or 72.5 per cent of GDP - a very dan­ger­ous level for a de­vel­op­ing coun­try like Pak­istan. Due to the grow­ing debt bur­den, the coun­try spent Rs1.5 tril­lion or one-third of its to­tal bud­get on debt ser­vic­ing in the last fis­cal year. The im­ple­men­ta­tion of the ex­pan­sion­ary fis­cal pol­icy has ex­posed the coun­try to the risk of twin deficits in its cur­rent ac­count and bud­get. The cur­rent ac­count deficit also widened to a record $18 bil­lion in the last fis­cal year.

Ex­cept for the Khy­ber-Pakhtunkhwa (K-P) gov­ern­ment, the other three pro­vin­cial govern­ments opened pub­lic purse ahead of gen­eral elec­tions. In­stead of gen­er­at­ing Rs347 bil­lion in cash sur­plus, the four pro­vin­cial govern­ments cu­mu­la­tively booked a bud­get deficit of Rs22.4 bil­lion. Against rev­enues of Rs1.4 tril­lion, the Pun­jab gov­ern­ment's to­tal ex­pen­di­ture surged to Rs1.42 tril­lion, a dif­fer­ence of Rs6.6 bil­lion. The last Sindh gov­ern­ment booked a bud­get deficit of Rs42.3 bil­lion and Balochis­tan gov­ern­ment also over­spent Rs7.8 bil­lion. The K-P gov­ern­ment showed a cash sur­plus of Rs34.4 bil­lion.The fed­eral gov­ern­ment's to­tal net in­come af­ter trans­fer­ring pro­vin­cial shares stood at Rs2.5 tril­lion. But it in­curred ex­pen­di­ture to the tune of Rs4.7 tril­lion, book­ing a deficit of Rs2.2 tril­lion.

The fed­eral gov­ern­ment's tax rev­enues fell by about Rs265 bil­lion against the tar­get of Rs4.3 tril­lion. The main rea­son was the FBR's fail­ure to achieve its Rs4.013-tril­lion an­nual tax col­lec­tion tar­get. Its col­lec­tion stood at Rs3.842 tril­lion, in­clud­ing the Rs121 bil­lion col­lected un­der the tax amnesty scheme. The col­lec­tion un­der the head of other taxes also fell short of the tar­get by Rs94 bil­lion to Rs223.6 bil­lion mainly due to less re­cov­ery of Gas In­fra­struc­ture Devel­op­ment Cess.

Non-tax rev­enues stood at Rs630 bil­lion only, short of the tar­get by Rs350 bil­lion. The main rea­sons be­hind the low non-tax re­ceipts were the United States' de­ci­sion to with­hold Coali­tion Sup­port Fund pay­ments, lower-than-bud­geted profit of the State Bank of Pak­istan (SBP) and short­fall in div­i­dends and mark-up re­ceipts.

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