Govt restricts budget deficit to Rs257.2b

For the first time ever, the entire financing burden is on domestic sources.

ISLAMABAD:

Amidst worsening economic conditions, the government has managed to restrict the gap between its expenditures and revenues to Rs257.2 billion, but it has failed to arrange foreign loans to finance the deficit. For the first time, the entire burden of financing has been shifted to the domestic market.

A summary of the consolidated federal and provincial budgets, released here on Wednesday by the Finance Ministry, showed that from July through September total expenses remained at Rs791 billion against total income of Rs533.7 billion.

This led to a budget deficit of Rs257.2 billion which was 1.2% of the total national output, slightly over the required ratio to restrict it to 4% of Rs850 billion by June-end.

However, the worrisome element, according to the official statistics, is the financing of the deficit. The details show that probably for the first time the government not only financed the entire budget deficit from domestic sources but also consumed internal financing to payback part of foreign debt that became due in the first quarter of the current fiscal year.

According to statistics, from July through September, Pakistan received gross external loans and grants to the tune of Rs31.6 billion. During the same period it had to payback Rs35.9 billion, resulting in net negative inflows of Rs4.4 billion.

During the last two years the external inflows have been gradually declining, particularly since May 2010, when the International Monetary Fund (IMF) suspended Pakistan’s bailout programme due to its inability to meet the conditions. Up to June, the government had managed to at least get 10% of the financing requirements from external sources.

A complete shift to domestic sources is fast crowding out domestic credit, leaving virtually nothing for the private sector to borrow. The government borrowed Rs142.1 billion from non-banking channels and another sum of Rs119.5 billion from banking sources to finance the deficit.

Published in The Express Tribune, December 1^st, 2011.