A Dar-ing move to understate Pakistan’s budget deficit

Government books Rs64b as non-tax revenue in 2016-17 after earlier placing the same amount as earnings in 2014-15

ISLAMABAD: Desperate to understate the budget deficit, the government has included the same amount of Rs64 billion as ‘non tax revenue’ in 2016-17 after it already booked the money as part of its earnings from the Saudi Arabian ‘gift’ of $1.5 billion two years ago.

This has raised suspicions of figure fudging which, if proven, may invite penalties from the International Monetary Fund, as a single item cannot be booked twice. The IMF had also imposed penalties on Pakistan after coming to know of fudged fiscal accounts during the second year of the PML-N government.



To camouflage the whole exercise, the Finance Ministry has shown the Rs64 billion as sale proceeds of the government-owned LNG-based power plants being set up in Punjab, said sources in the Finance Ministry. However, this has been done in such haste that the owner of these plants - the Ministry of Water and Power - does not even know the modalities.

The government has taken out Rs64 billion from the Pakistan Development Fund Limited (PDFL) and shown it as its non-tax revenues for fiscal year 2016-17 that ended on June 30, sources in Ministry of Finance told The Express Tribune.

Saudi Arabia had ‘gifted’ $1.5 billion to Pakistan in 2014 to help Islamabad in its time of economic distress. The Pakistan Development Fund was set up with Saudi Arabia’s assistance in early 2014 and the government parked the whole amount in the PDF by showing it in the accounts of fiscal year 2014-15.

This can be verified from the accounts of 2014-15 that show a Rs177-billion statistical discrepancy. By taking into account $1.5 billion or Rs177 billion, the budget deficit in that year came down to 5.3% of Gross Domestic Product or Rs1.456 trillion. Had the Saudi gift not been booked in 2014-15, the budget deficit in that year would have touched 6% of GDP or Rs1.633 trillion.

A top official of the Finance Ministry confirmed to The Express Tribune that Rs64 billion has been taken out of the PDF. But he said that the amount has been utilised to purchase two assets -the Haveli Bahudur Shah LNG plant and Baloki power plant. These two plants have been set up with Rs190-billion investment from the Public Sector Development Programme.

The sale proceeds of these two federal government owned power plants have been booked as non-tax revenues for fiscal year 2016-17, said the official. He said that these were the first two assets created by the money utilised from the Pakistan Development Fund Limited (PDFL).



The government also sold the Pakistan Security Printing Corporation for Rs100 billion to the central bank to control budget deficit for fiscal year 2016-17.

There is a clear violation of accounting manuals, as the PDFL was incorporated as a limited company set up under the Companies Ordinance of 1984, said the sources. They said that the federal government can only book the profits of the PDFL as its non-tax revenue while the asset cannot be shown as non-tax revenue. The spokesman of the Finance Ministry did not officially respond to the questions raised by The Express Tribune.

All creative accounting is being done to understate the budget deficit which, from the financing side, has already gone up to 6.3% of GDP. However, the Ministry of Finance is trying to bring it down to 5.3% of GDP by applying such tactics.

Even at 5.3% of GDP or Rs1.7 trillion, this will be the first time in the last four years when budget deficit will be higher than the preceding year. The government closed fiscal year 2015-16 at a budget deficit equal to 4.6% of GDP.

The government had set up the PDFL as an independent development finance institution (DFI)  to be operated on commercial basis. It is not clear what mechanism has been followed to evaluate the two power plants and whether any exemption was claimed from the Public Procurement Regulatory Authority.

In June last year, Dar had invited the Asian Development Bank to join the PDFL as an equity partner. The latest development may hurt the ADB’s plans to invest in the PDFL.

Published in The Express Tribune, July 18^th, 2017.

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