Economists fear budget deficit may rise beyond Rs2tr

Cast doubt over Rs814b fiscal adjustment announced by the govt

ISLAMABAD: Members of the Economic Advisory Council (EAC) and independent economists have cast doubt over the government's claim of introducing a steep fiscal adjustment of Rs814 billion through a mini-budget, apprehending that the budget deficit may rise beyond the targeted Rs2 trillion.

On-the-record and background discussions with government-constituted EAC members and other leading economists suggested that there was ambiguity about the mini-budget announced by Finance Minister Asad Umar this week.

Umar told the National Assembly on Tuesday that in the case of business as usual, the budget deficit would swell to 7.2% of gross domestic product (GDP) or Rs2.9 trillion. He announced that as a result of 'big measures', the deficit would be reduced to 5.1% of GDP or Rs2 trillion by the end of fiscal year 2018-19.

This requires a fiscal adjustment of Rs814 billion.

"My calculations showed that despite the announcement of new measures, there will be slippages on both the revenue and expenditure fronts," asserted Dr Ashfaque Hasan Khan, a key member of the EAC.



"Against the revised budget deficit target of 5.1%, the gap may still widen and remain in the range of 6-6.5% of GDP."

Khan said the only known expenditure-side adjustment was on account of Public Sector Development Programme, which had been cut by Rs225 billion.

"The Rs225-billion adjustment is equal to 0.6% of GDP," Khan pointed out. "The finance minister has said that there will be tax efforts of Rs183 billion or 0.5% of GDP, so the total adjustment is only equal to 1.1% of GDP or Rs408 billion."

The EAC member added that the Federal Board of Revenue's (FBR) tax collection was expected to remain around Rs4.265 trillion, which was Rs133 billion lower than the revised target. "The Rs4.398-trillion tax collection target is unrealistic," he added.

"More is required to address the macroeconomic challenges as the measures announced by the finance minister suggest this is only less than business as usual," stressed Khan. "The government has perhaps decided to approach the IMF and more measures might be announced in consultation with the credit organisation."

The budget was always a reflection of the state of economy and Pakistan's immediate problem was the balance of payments crisis, highlighted Khan, adding there should have been additional measures to discourage imports.



"The problem is that the budget has been prepared by those who, in the past, have also advised the previous government," he said.

He was of the view that the government announced half-hearted measures to address the current account deficit challenges.

"The mini-budget is just a beginning and in the future, it has to be backed by economic reforms," said Dr Nadeemul Haque, former deputy chairman of the Planning Commission and a member of government's task force on civil service reforms.

"The stabilisation measures announced by the finance minister are not good enough to meet the challenges facing the economy," said former federal finance secretary Dr Waqar Masood.

"It is surprising that despite a clear claim that deficit needs to be reduced by 2.1%, actual measures are simply missing," he said.

Masood lamented that the government should have taken clear corrective measures, but instead it issued only a rudimentary one-page document, calling it Budget at a Glance - Updated Budget Fiscal Year 2018-19.



"All it tells us is that with minor adjustments to different budget heads, the deficit will be on the journey from 4.9% to 7.2% and back to 5.1%, which is a mystery," said Masood.

He emphasised that the new budgetary measures had not helped to understand what economic policy the government planned to pursue. These stabilisation efforts would not alter the ground realities, he added.

The mini-budget was needed in the prevailing circumstances, but there should have been more action to address the macroeconomic vulnerabilities, suggested Dr Abid Sulehri, another member of the EAC.

He was of the view that the government needed to make further fiscal adjustments.

"The government needs to take some tough policy measures, which can be taken only in the next couple of months," he said. "Otherwise, there will be less acceptability of these actions in the public."

Another EAC member Naved Hamid expressed his inability to comment on the issue, saying the government did not show him the budget before announcement.

Former State Bank of Pakistan governor Syed Salim Raza said the mini-budget reflected only short-term measures and as the time passed, the government would have to take additional measures.