|Budget deficit soars to almost nine percent of GDP|
01 August 2012
ISLAMABAD: The government’s fiscal dreams for FY13 are already facing the harsh sun of reality. Instead of helping the federal government achieve its target of provincial revenue surpluses worth 0.5 percent of Gross Domestic Product (GDP) in FY 12, Sindh and the Punjab have generated deficits to the tune of Rs37 billion, confirmed secretary finance division Abdul Wajid Rana.
Official sources said that an unprecedented surge in expenditures in June 2012 made it difficult for the economic managers to curtail the budget deficit to the revised estimate of 5.5 percent of GDP.
However, this revelation comes at a time when the figure for the fiscal deficit is being hotly contested between the government and independent economists and all eyes are on the finance ministry for the official release of fiscal accounts for FY12. While the government’s critics maintain the delay is caused by efforts within the ministry to massage the numbers, the government insists the continuing strike within the Accountant General of Pakistan Revenues is to blame.
In the absence of the ‘official’ figure, most experts have been predicting a fiscal deficit of eight percent of GDP for FY12. And worryingly, this latest development is expected to take the overall budget deficit close to nine percent of GDP.
The most problematic aspect, caution economic wizards, is that this ballooning budget deficit will require close to Rs1,800 billion to bridge. But Rana challenges these calculations. “It would not be fair to include 1.9 percent of GDP on account of power and commodity sector liabilities [in the fiscal deficit calculation] as it was a notional expenditure that incurred in the previous year but was adjusted in the books during the last financial year,” he argued. Be that as it may, the government’s revenues aren’t anything to get excited about either. Against the target of Rs1,952 billion for FY12, the Federal Board of Revenue could only collect Rs1,908 billion after adjusting books (the SBP was insisting the tax collection amount must be closer to Rs1,902 billion).
Since the government couldn’t manage to auction the 3-G licences or secure the repayments from the US under the Coalition Support Fund head before June 30, it also saw a shortfall in non-tax revenues.
Given the rapidly decreasing foreign inflows, especially those for budgetary support, the government will have little choice but to rely on domestic bank borrowing to finance a budget deficit of over Rs1,800 billion. And given that bank borrowing in FY11 was at 3.4 percent of GDP as against 0.3 percent of the GDP in FY02, this is a dangerous economic trend that will lead to crowding out of the private sector.
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