Out of pocket: Fiscal deficit widens to Rs935b in first half

Power subsidies, debt servicing and delay in disbursement of CSF cited as major reasons.

ISLAMABAD:

The federal government’s expenses exceeded its income by Rs935 billion during first half of the fiscal year, which is 95 per cent of the total estimated annual gap, suggesting the authorities are going to miss the target by a wide margin.

The unusual widening of the deficit in the first half is mainly because of massive electricity subsidies, rising cost of debt servicing and delay in disbursements of coalition support fund by the US.

From July through December 2011, the net federal income (excluding transfers to provinces) was Rs615 billion against expenses of Rs1.55 trillion, resulting in a shortfall of Rs935 billion, said the Finance Ministry.

The amount also includes Rs390billion on account of electricity and commodity financing arrears that the ministry used to calculate separately until the IMF objected to this method.

The gap is already 95 per cent of the annual revised budget deficit target of Rs985 billion and almost 110 per cent of the original budget deficit target of Rs851 billion.

Of the Rs935 billion, the government filled 3.6 per cent or just Rs34 billion through external sources while the bulk of the deficit has been financed domestically.

Major expenses

The government has spent an amount of Rs453 billion on subsidies, which is 29.3 per cent of the total deficit so far. In addition to that Rs244 billion was spent on defense services and Rs397 billion utilised for debt servicing. The spending on these three major heads accounts for 70 per cent of the deficit.

The clearance of outstanding payments of electricity and commodity financing caused massive increase in subsidies. Had this not been the case, the net electric subsidy would have been Rs63 billion, said Rana Assad Amin Secretary Ministry of Finance.

On the federal development programme the government spent an amount of Rs126 billion from July through December, which is 42 per cent of the annual allocation.

Revenues

During the first half of the fiscal year the federal government raised Rs845 billion in tax revenues or 43 per cent of the annual target. However, the government faced difficulties when it came to non-tax revenues like the coalition support fund, outstanding dues of PTCL withheld by Etisalat and delay in auction of 3G license. In first half it collected Rs 235 billion on account of non-tax revenues, which is slightly over a third of the annual target, said the Finance Ministry.

The gross revenue receipts in the first half totalled Rs1.08 trillion. Out of this the federal government transferred Rs466 billion to the provinces as their share in federal taxes. Analysts and international lending agencies have started questioning the rationale of 7th National Finance Commission Order that gave 10 per cent additional resources to the federating units without handing over responsibilities.

In the 7th Order the federal and provincial governments agreed to increase provinces’ share in federal income from 47 per cent to 57.5 per cent for next five years.

Published in The Express Tribune, February 17^th, 2012.