Budget books: Govt makes history, avoids deficit in March

Revenues match expenditures for the first time.

ISLAMABAD:

Probably, for the first time in the country’s history, the revenues matched expenditures in March that helped restrict the budget  deficit in the first nine months of the current financial year to Rs825 billion or 3.1% of the national output.

According to provisional results, the gap between income and expenses from July to March remained almost at July-February level, as there was no deficit in March, said a senior official of the Ministry of Finance.

If what the official says is true, then it was for the first time ever that the country’s budget books were not in the red. The fiscal deficit figures may slightly change once the federal government receives the reconciled civil accounts, the official added.

The 3.1% budget deficit appears promising, however, it fails to highlight the underlying risks to achieving the year-end goal of 5.8% of gross domestic product, which is the main condition of the $6.7 billion three-year International Monetary Fund programme, according to analysts.



The analysts said on the one hand the federal government had included around Rs200 billion in non-tax income of the previous fiscal year in the current year’s revenues, while on the other the outstanding amount of circular debt of the last nine months has not yet been brought on the budgetary books.

The fiscal deficit of Rs825 billion was achieved on the back of unprecedented provincial surplus of Rs250 billion, said the official. The federal government had transferred Rs1 trillion to the four provinces as their share in federal taxes, higher by Rs107 billion or 12% compared to the previous year. Of this, the provinces saved Rs250 billion, said the official.

The savings by the provinces were 80% higher when compared with the savings of the previous fiscal year. During July-March of the previous year, they had showed Rs139 billion in surplus.

However, by the end of the previous fiscal year, net savings came down to just Rs62 billion – a phenomenon that analysts say could repeat this year. They also said the huge savings suggested that the provincial governments were not spending much on development schemes.

The federal government’s gross income increased to Rs2.36 trillion out of which it transferred Rs1 trillion to the provinces as their share in federal taxes. In absolute terms, the budget deficit of 3.1% was Rs230 billion less than the comparative period of the previous fiscal year, but it was not achieved by reducing expenses.

From July through March of the current fiscal year, total expenditures of the federal government increased to Rs2.4 trillion, higher by Rs214 billion or 10% over the comparative period of previous year.

The fiscal deficit in first nine months stood at Rs1.08 trillion or 4.2% of GDP despite the government having taken some questionable steps. There was an increase of 17% in tax collection, while non-tax revenues soared by almost one-third.

In non-tax revenues, the State Bank of Pakistan (SBP) gave a profit of Rs205 billion in nine months including income of Rs45 billion that the SBP withheld in the previous fiscal year and transferred to the federal government in the current year.

It has already taken over Rs67 billion of the telecom industry, which was earlier placed under an special arrangement.

To finance the deficit, the federal government borrowed Rs850 billion from domestic sources. An additional borrowing of Rs25 billion suggests that external financing during this period remained negative.

The government borrowed Rs450 billion from commercial banks and Rs341 billion from non-banking sources, said the official.

Borrowing for budget financing from the SBP was reduced to Rs59 billion after the federal government raised Rs525 billion in the last auction of Pakistan Investment Bonds, said the official.

Published in The Express Tribune, April 8^th, 2014.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.