Fiscal discipline: Government tightens its belt and lowers spending

Economic managers generate maximum savings from non-development allocation.

ISLAMABAD:


Amid fears of a significant shortfall in non-tax receipts, the government has exhibited financial discipline and managed to spend less than its allocated amount for the period from July 2011 to February. The financial managers have managed to bring about a saving of Rs125 billion, or 5 per cent.


This is more than the entire amount expected from the US on account of reimbursements in the coalition support fund.

Against an allocation of Rs1.71 trillion in spending, the government managed to restrict its expenses to Rs1.58 trillion during the first eight months of the fiscal year ending June 30, 2012, according to an official at the finance ministry. The authorities had estimated that they would spend about 67% of the annual budget in eight months but after several cost cutting measures, this has been restricted to 62%.

The real kicker here is that 92% of these savings were on account of non-development expenditure. The official said that the government’s monetisation of cars policy had also started yielding dividends. The finance ministry has made significant savings of up to 60% on account of fuel, repair and maintenance heads and will also surrender 11 vehicles to the Cabinet Division, said the official.


The single biggest item cut was subsidies, which was slashed by Rs73 billion to Rs577 billion. The saving is 58.4 per cent of the total savings of the period.

There was also savings on defense related expenses that remained slightly over 60 per cent of the annual allocation. Similarly, the actual development spending remained at Rs190 billion, against an allocation of Rs200 billion for eight months.

However, interests payments remained on the target and the government utilized the full amount of Rs 530 billion. The annual interest payments have been estimated at Rs 791 billion. This is despite the fact that the central bank has lowered the key policy rate by 200 basis points during the current fiscal year, indicating the interest payments may cross the budget ceiling by June.

While the government expenses remain largely under control, the actualisation of non-tax receipts is fast becoming a problem for the authorities. For the current fiscal year, the government has set a Rs658 billion non-tax collection target. Almost a third of it is estimated on account of CSF disbursements by the US and auction of telecom spectrums.

Against original estimates of $1.4 billion Washington has not disbursed any amount despite a lapse of eight months. Pakistan Telecommunication Authority has also postponed the plan for auction of 3G license, raising fears that the transaction is unlikely to be completed before June. The collection from petroleum levy is also significantly falling behind target, said another official at the Finance Ministry.

The government has included in its revenue estimates $500 million in exchangeable bonds to be issued by the state-owned Oil and Gas Development Corporation. However, so far there are no signs that the transaction will be completed till June.

Published in The Express Tribune, March 10th, 2012.
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