Govt controls deficit, thanks to CSF payments

US decision to reimburse $1.19b helps economic managers save some face.

Shahbaz Rana September 18, 2012


The government appears to have consolidated its fiscal position during the first two months of the current fiscal year, having brought down the national budget deficit to 0.8% – or Rs191 billion.

The gap between national income and expenditures during the July-August period is Rs36.3 billion – or 0.2% of Gross Domestic Product (GDP) – lower than the corresponding period of the last fiscal year, according to finance ministry officials.

The provisional results seem somewhat encouraging, especially after the Pakistan Peoples Party-led coalition government closed the last fiscal year with a highest-ever budget deficit of Rs1.77 trillion, or nearly 8.53% of GDP.

“Net federal revenues, excluding provinces’ share, were Rs182 billion against total expenditures of Rs419 billion: a shortfall of Rs237 billion, or 1% of GDP,” said Rana Assad Amin, advisor to the finance ministry. “The federal government transferred an amount of Rs 186 billion to the four provinces under the divisible pool, out of which the federating units saved a sum of Rs46 billion,” he added.

“The provincial savings led to the overall budget deficit coming down to 0.8% of GDP,” said Amin.  However, a detailed review of income and expenditures shows that the US’ decision to reimburse $1.19 billion under the Coalition Support Fund (CSF) in one tranche helped economic managers save some face. The release of funds covered a shortfall which had surfaced due to a decline in tax revenues.

A finance ministry official said the Federal Board of Revenue (FBR) has bagged Rs216 billion during the first two months of fiscal 2013. The figure is Rs16.8 billion, or 7.2%, less than revenues generated in the same period during the previous fiscal year. Non-tax collection, including CSF reimbursements, remained at Rs152 billion.

FBR sources say that the appointment of FBR Chairman Ali Arshad Hakeem, and re-employment of Member Inland Revenue-Policy Asrar Raouf on a one-year contract, has created ripples in the FBR bureaucracy. They added that there was resentment within the machinery, and that Raouf’s allegedly dubious past has sent wrong signals to field formations. The government must overhaul the FBR bureaucracy to avoid disaster, they added.

The fiscal consolidation is likely to help economic managers during the first round of dialogues with the International Monetary Fund, scheduled to start in Dubai from next Tuesday.

Bumpy road ahead

While the provisional results for the first two months are in line with the annual overall budget deficit target of 4.7%, sustaining the trend seems to be a daunting task. The government has barely managed to keep the budget deficit below 1% of GDP on the back of the CSF reimbursements and the provincial surplus of Rs46 billion.

The government has now received in one tranche whatever it had expected to receive from the CSF for the whole fiscal year. Sources said there is a strong probability that the FBR will miss the annual target of Rs2.38 trillion by a wide margin.

Although the provinces have saved Rs46 billion in just two months, which is a commendable 58% of the annual projection of Rs80 billion, the trend is unlikely to continue. Provincial governments are likely to jack up spending due to the upcoming elections, which will strain their budgets.

The biggest drain on resources over the past three years has been power subsidies. The Water and Power Ministry has not been able to crack down on corruption and pilferage in the sector, and the government may end up paying electricity subsidies more than the budgeted amount. Meanwhile, Finance Secretary Wajid Rana is struggling to limit subsidies only to the extent of the price differential, while refusing to pay for less recoveries and line losses.

Published in The Express Tribune, September 19th, 2012.

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Shahbaz Rana | 8 years ago | Reply

@M Ahmar Ali, just a small correction, CSF is not an aid but the reimbursment of the money spent while fighting war and cost of services being renered in the WOT

M.Ahmer Ali | 8 years ago | Reply What the greatest ever live example full of effrontery and meanness of beggary,slavery and conscienceless set by Pakistani beggars,slaves and conscienceless leaders!!!!!!!!!And this the exactly what US' wants from Pakistan and also succeeded in its missions that Pakistan always depends on US' aid and could never stand on its own feet and couldn't take full advantages from the available resources within Pakistan for real and true interference-free and uninterrupted self-reliance and sovereignty........
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