Budget deficit widens after Saudi Arabia grant excluded

Govt rushes to revise fiscal accounts, deficit will be 3.8% of GDP.

ISLAMABAD:

The federal government on Friday rushed to revise its fiscal accounts and excluded Saudi Arabia’s grant of $1.5 billion or Rs157 billion from the head of statistical discrepancy – a decision that highlights flaws in the way fiscal affairs are run.

The immediate impact of the decision is that the overall national budget deficit – gap between national income and expenses – has widened by the same amount of Rs157 billion for the July-March of the current fiscal year.

As against an earlier announced budget deficit of 3.1% of Gross Domestic Product or Rs 811.7 billion, the budget deficit will be 3.8% of GDP or Rs969 billion after excluding the impact of a transfer receipt from a friendly country, according to Ministry of Finance.

The revised deficit is up by 0.7% of GDP, which is quite significant, highlighting the shallowness of the official claim of achieving fiscal consolidation in first year that it had proclaimed after announcing 3.1% deficit last month.

According to the summary of the fiscal operations for July 2013-March 2014, there was a statistical discrepancy of Rs171.4 billion in the budgetary books. The head of statistical discrepancy deals with revenues and expenditures whose source and purpose are not known for the time being.

The high statistical discrepancy is due to the impact of a transfer receipt from a friendly country which has been kept separately in an account named the Pakistan Development Fund (PDF), said the ministry.

Without this, the impact of statistical discrepancy would come to Rs14 billion, which would imply a deficit of Rs969 billion or 3.8% of the GDP.

The revision in fiscal accounts not only highlights transparency concerns but also puts a question mark on the International Monetary Fund (IMF) that vetted accounts for the first nine months during the third review of the IMF programme.

In February-March this year, Saudi Arabia had given $1.5 billion in aid to Pakistan in two equal tranches. The aid came following visits of top Saudi government officials to Pakistan.

The $1.5 billion came in the PDF account, maintained in the State Bank of Pakistan (SBP). The SBP gave Pakistan rupees in exchange of dollars to the federal government.

The Pakistan Peoples Party had suspected that the aid flew in return of a change in foreign policy – a charge the sitting government denies.

According to officials, who in the past have remained involved in fiscal operations, if the Saudi Arabia money had been an aid, the government would have treated it as part of foreign grants, which is considered as non-tax revenues.

Published in The Express Tribune, May 24^th, 2014.

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