Not a care: ‘Reckless’ spending takes budget deficit to Rs1.1 trillion

Country reaches close to full-year deficit target in nine months.

ISLAMABAD:

The accusation of reckless spending against the previous government during its last nine months in office seemed to be true as it spent Rs1.168 trillion more than its income from July through March – a deficit that the budget-makers had anticipated for the full fiscal year.

The PPP-led coalition government had completed its constitutional term on March 16, but former prime minister Raja Pervez Ashraf remained in office until March 24 and continued the spending spree.

In the first nine months (July-March) of the current fiscal year 2012-13, the federal government recorded a budget deficit – the gap between income and expenditure – of Rs1.168 trillion or 5% of gross domestic product, say officials of the Ministry of Finance quoting latest figures.

As state revenues fell short of requirements, the federal government borrowed an average Rs4.3 billion per day, an amount which is roughly Rs250 million per day higher than the borrowing trend noticed until the end of February.

The federal deficit target, approved by parliament for the whole fiscal year, was Rs1.184 trillion or 5% of GDP.

The overall budget deficit target, including savings by provinces, had been set at Rs1.11 trillion or 4.7% of GDP.

The figures showed that the overall budget gap stood at Rs1.065 trillion or 4.5% of GDP in nine months as the four provincial governments saved Rs103 billion out of their incomes that helped restrict the national deficit.

In nine months, gross federal income remained at roughly Rs2 trillion, which was Rs320 billion or 20% higher than in the corresponding period of last year. The major reason behind the increase in income was the release of $1.9 billion by the United States on account of Coalition Support Fund. Tax revenues were Rs1.334 trillion, higher by Rs61 billion or 4.8%.

Out of the income of Rs2 trillion, the federal government gave Rs893 billion to the provinces as their share in federal taxes, leaving itself net income of less than Rs1.1 trillion.

Against this income, the government spent Rs2.25 trillion in nine months. In the same period of 2011-12, total expenditures were also Rs2.25 trillion, but this also included cleansing of inter-corporate debt to the extent of Rs382 billion. By excluding the corporate debt, the federal expenses grew by over 20% in nine months of the current fiscal year.

Defending the fiscal position, finance ministry spokesman Rana Assad Amin stressed that the ministry successfully managed to control expenditures and keep them at last year’s level despite all odds.

He said the overall budget deficit would not exceed 6.5% of GDP by June this year, which would be in line with the revised target approved by the cabinet in its second last meeting before the end of government’s term.

Independent assessments and those of international financial institutions suggest that the overall budget deficit will likely be around 7.5% of GDP. Again, hefty power subsidies, high cost of borrowing and certain tailour-made expenditures led to the increase in overall spending.

In the nine months under review, the finance ministry gave Rs270 billion in power subsidies against the target of Rs185 billion for the whole year. There was an increase of 141% in power subsidies as in the last comparative period, excluding power arrears, the subsidies had remained at Rs112 billion.

Similarly, Rs772 billion was given in interest payments, higher by Rs148 billion or 23.7%. For running the federal government, Rs180 billion was spent, an increase of Rs30 billion or 20%.

Federal development spending, including Rs42.5 billion that Raja Pervez Ashraf spent according to his will, remained at Rs203 billion.

Published in The Express Tribune, April 23^rd, 2013.

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