July-December: Govt misses budget deficit target, amount widens to Rs799b

Annual target set to be missed by wide margin, reduction in revenue attributed as reason

Shahbaz Rana February 14, 2017

ISLAMABAD: The government has miserably failed to perform in the area it has claimed to be the hallmark of its economic performance. The budget deficit in the first half of the ongoing fiscal year has widened to Rs799 billion, indicating that it will miss the parliament-approved annual target by a wide margin.

The overall budget deficit - gap between expenditures and income - increased to 2.4% of the Gross Domestic Product (GDP) or Rs799 billion during July-December period of this fiscal year, reported the Ministry of Finance on Tuesday.

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The results are in line with expectations of independent economists who were anticipating deviations from prudent economic policies after expiry of the International Monetary Fund (IMF) programme. The three-year $6.2 billion IMF bailout package ended in September last year.

The first-half budget deficit was 63% of the annual target of Rs1.276 trillion or 3.8% of GDP. In order to achieve the parliament-approved annual budget deficit target, the government was required to restrict the deficit to Rs600 billion or 1.8% of the GDP during the first half.

This shows that the government has missed the first-half budget deficit target by about Rs200 billion, largely because of its failure in enhancing revenues. The 2.4% budget deficit was despite the fact the government blocked electricity subsidies payments, prompting Secretary Water and Power to write a letter to the Finance Ministry for clearance of dues.

The Finance Ministry missed the target by about Rs200 billion despite showing a huge statistical discrepancy of Rs57.2 billion in the first half. Interestingly, the Ministry does not know where it spent Rs57 billion.

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Missing the annual budget deficit target of Rs1.276 trillion or 3.8% of GDP would mean more reckless domestic and foreign borrowings to fill the gap. The Finance Ministry insists that parliament approves the budget deficit, which implicitly is a permission to take loans equivalent to the size of the budget deficit.

The federal government borrowed Rs240 billion from foreign lenders and Rs558.2 billion from local sources to bridge the budget deficit gap.

Under the three-year IMF programme, the government had managed to bring down the budget deficit to 4.6% of the GDP, although independent economists questioned the figure.

The IMF had said that economic stabilisation would hinge on continuation of reforms introduced under the IMF programme, particularly in the energy sector.

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However, the 2.4% budget deficit in the first half was even far higher than 1.7% reported in the comparative period of the last fiscal year when the annual budget deficit target was 4.2%.

Reasons for deficit

The fiscal operations summary of the Finance Ministry showed that the deficit ballooned primarily because of reduction in income, as there was no abnormal growth in expenditures. This was because the government did not fully book the power sector subsidies.

Total revenues amounted to only 5.9% of the GDP during the first half of this fiscal - even lower than the performance in the comparative period when this ratio was at 6.5%, according to the fiscal operations summary. The decline was both in tax and non-tax revenues.

In absolute terms, the total revenues were below Rs2 trillion, less than the revenues in the comparative period of the last fiscal year. The major hit came from non-tax revenues due to reduction in profit of the State Bank of Pakistan and non-disbursements of Coalition Support Fund by the United States.

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The central bank booked Rs87.8 billion profit during the first half, significantly lower than the previous year. The defence receipts amounted to only Rs4.6 billion this year as against Rs78 billion in the last year.

There was also reduction in receipts on account of royalties on oil and gas and dividends of the government-owned companies. The dividends receipts stood at just Rs12.2 billion as against Rs31.4 billion last year.

The FBR’s tax revenues grew by only Rs79 billion to less than Rs1.6 trillion.

Compared to reduction in revenues, the expenditures increased both in absolute and in terms of total size of the economy. The total expenditures increased to Rs2.8 trillion during the first half -about Rs270 billion higher than the previous year.

The interest payments stood at Rs647.4 billion during the first half, which were about Rs16 billion higher than the comparative period. The defense spending recorded at Rs336.4 billion -about Rs33 billion higher than the previous year.

The federal development spending was just Rs198 billion as against Rs155 billion last year.


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