Fiscal deficit reaches whopping Rs1.68 trillion

Government scrambling to reconcile overstated revenues.

Shahbaz Rana July 17, 2012


While the government is still trying to somehow reconcile the numbers – the budget deficit has reached a whopping Rs1.68 trillion or 8% of the total size of the economy.

This historic difference between the government’s expenditures and income is 8% of the gross domestic product (GDP) for the outgoing fiscal year 2011-12, according to preliminary reports. Sources added this is double of the original target of 4%.

The ministry had initially estimated the deficit to be Rs850 billion or 4% of the GDP. Even after it revised its estimates the figure stood at 6.1%, according to the Economic Survey of Pakistan.

The government is yet to take into account expenses incurred during the month of June; once that figure is also added, the deficit will stretch further.

An official in the finance ministry said civil accounts have not been reconciled for the month of June due to strikes observed by employees of the Accountant General of Pakistan Revenues (AGPR) demanding higher salaries. He added the government’s bank deposits had not been finalised either.

The higher deficit is the result of a number of factors. Not only was there a massive shortfall in non-tax revenue and the Federal Board of Revenue’s tax collection, the ministry also understated expenditures.

Economic managers were relying on optimism. They insisted the US would disburse money under the Coalition Support Fund, after all, and the government will be able to generate revenue by auctioning spectrum of 3G telecom services to earn at least Rs75 billion in non-tax revenues. However, none of the receipts materialised. Similarly, subsidies exceed the budgeted amount by three times.

The government is still scrambling to somehow lower the deficit.

Sources said the finance ministry is considering Rs210.4 billion to be 1% of the GDP: this is based on the assumption that the economy’s size will grow to 21.04 trillion, with an annual growth of 4.2%. According to Pakistan Bureau of Statistics, the economy grew by 3.7% last year with its total size being Rs20.6 trillion.

By taking into account this ‘optimistic’ figure of the GDP, the ministry is understating the deficit by roughly Rs40 billion or 0.2% of the economy’s size.

In another move, the FBR is reportedly trying to overstate tax collection. Sources said the revenue collected is much lower than what the State Bank of Pakistan was communicating to the finance ministry.

The FBR has said it has collected Rs1.915 trillion, including Rs25 billion collected by the Sindh Revenue Board (SRB). Constitutional law experts, however, maintain it is illegal to treat provincial tax collection as part of federal taxes.

Contrary to FBR’s reports, the State Bank has told the finance ministry that tax revenue, including SRB’s collection, stands at Rs1.902 trillion, sources said. A finance ministry official, however, insisted the government will rely on SBP’s figures, which are based on actual deposits in the national exchequer.

FBR’s actual tax collection target was Rs1.952 trillion. Based on the actual SBP figure of Rs1.877 trillion of FBR’s tax collection, the Rs75 billion shortfall will add about 0.4% to the deficit.

The finance ministry’s spokesman was not available for comment despite repeated attempts.

Published in The Express Tribune, July 17th, 2012.


Shahid Butt | 8 years ago | Reply

Govt should cut down salaries by 50% of all MPAS. MNAS, Ministers including prime minister and president. This will be a symbolic gesture. It will not produce any big dent in the fiscal deficet

Dr Meekal Ahmed | 8 years ago | Reply

@Shahid Butt:

Yes, they did increase taxes on the rich (something the Greeks need to do as well) and also cut the salaries of cabinet members by 30%.

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