Fiscal prudence?: Govt shifts numbers to show ‘impressive’ performance
Claims improvement in fiscal performance through higher non-tax revenues.
In order to boost its non-tax revenues in the backdrop of a significant shortfall in tax revenues, the government showed receiving about three-fourth of the annual SBP profit in just six months. PHOTO: FILE
ISLAMABAD:
Pakistan was able to show an exceptional fiscal performance in the first half of this fiscal year as a result of smart accounting, as the federal government reflected an unprecedented increase in income from the State Bank of Pakistan (SBP) and the Water and Power Development Authority (Wapda) instead of showing any belt tightening.
While showing an ‘impressive’ fiscal performance, the government posted the national budget deficit – the gap between income and expenditures − at 2.2% of gross domestic product (GDP) or Rs570 billion in the July-December period of this fiscal year.
The fiscal performance has helped the government successfully complete the second review of the $6.7 billion International Monetary Fund (IMF) programme, even though it breached the target for reducing borrowings from the SBP.
However, a close review of income and expenditures revealed interesting patterns. The trend in current expenditures was the same as in the previous years but what made the difference was the increase in non-tax revenues, showed the Ministry of Finance documents.
In the first half, the federal government’s current expenditures stood at Rs1.376 trillion or 48.6% of annual expenditures, according to the documents. According to the ways and means limit, prescribed to ensure prudent fiscal management, the expenditures in the first half should not be more than 40% of the total. By that account, the government’s belt tightening claim appears to be a farce.
“Stringent spending controls and implementation of austerity measures as announced in the budget have helped in containing the fiscal deficit,” said Finance Minister Ishaq Dar on Sunday.
The gimmick
For the current fiscal year, non-tax revenues are estimated at Rs822 billion. But in the first half, the government has already collected Rs493.8 billion or 60% of the annual estimate.
An estimated income of Rs120 billion from the auction of telecom spectrum is also part of non-tax receipts, which is yet to materialise.
The 60% collection comes despite the fact that the country has not received the second tranche of $441 million (Rs46.5 billion) from the United States as part of the Coalition Support Fund.
In order to boost non-tax revenues in the backdrop of a significant shortfall in tax revenues, the government showed about three-fourth of the annual SBP profit in just six months. The central bank gave Rs145 billion in profit in six months against the annual target of Rs200 billion.
It has never happened in the past that the SBP gave 73% of its estimated annual profit in just six months. In 2012, it gave half of the annual profit in six months, in 2011 44%, in 2010 58% and in 2009 again 44%.
The SBP was requested to explain the sudden jump in profit and its response was awaited.
Similarly, the government had estimated that it would receive Rs11.9 billion in annual profit from Wapda on account of interest income on loans. But in six months, Wapda gave Rs47.6 billion, according to documents.
The federal government deducted past receivables from Wapda from the current year’s payments, explained an official of the Ministry of Finance.
The cash-based accounting system can easily be manipulated and this is what has been done, according to a former central banker. He said if the government recovered its income share while clearing the previous year’s circular debt, the income should also have been reflected in previous fiscal’s non-tax revenues.
Wapda spokesman was not available for comments.
For the full year, the government had estimated Rs23.8 billion in interest income from all public sector enterprises, but in six months it got Rs58 billion, the documents showed. Pakistan Atomic Energy Commission also gave Rs8.5 billion in interest income.
The government has already taken away Rs67.7 billion in funds from telecom companies to bridge the shortfall.
Notwithstanding the higher non-tax revenues, tax revenues stood at Rs1.025 trillion or 41.4% of the annual target.
Published in The Express Tribune, February 11th, 2014.
Pakistan was able to show an exceptional fiscal performance in the first half of this fiscal year as a result of smart accounting, as the federal government reflected an unprecedented increase in income from the State Bank of Pakistan (SBP) and the Water and Power Development Authority (Wapda) instead of showing any belt tightening.
While showing an ‘impressive’ fiscal performance, the government posted the national budget deficit – the gap between income and expenditures − at 2.2% of gross domestic product (GDP) or Rs570 billion in the July-December period of this fiscal year.
The fiscal performance has helped the government successfully complete the second review of the $6.7 billion International Monetary Fund (IMF) programme, even though it breached the target for reducing borrowings from the SBP.
However, a close review of income and expenditures revealed interesting patterns. The trend in current expenditures was the same as in the previous years but what made the difference was the increase in non-tax revenues, showed the Ministry of Finance documents.
In the first half, the federal government’s current expenditures stood at Rs1.376 trillion or 48.6% of annual expenditures, according to the documents. According to the ways and means limit, prescribed to ensure prudent fiscal management, the expenditures in the first half should not be more than 40% of the total. By that account, the government’s belt tightening claim appears to be a farce.
“Stringent spending controls and implementation of austerity measures as announced in the budget have helped in containing the fiscal deficit,” said Finance Minister Ishaq Dar on Sunday.
The gimmick
For the current fiscal year, non-tax revenues are estimated at Rs822 billion. But in the first half, the government has already collected Rs493.8 billion or 60% of the annual estimate.
An estimated income of Rs120 billion from the auction of telecom spectrum is also part of non-tax receipts, which is yet to materialise.
The 60% collection comes despite the fact that the country has not received the second tranche of $441 million (Rs46.5 billion) from the United States as part of the Coalition Support Fund.
In order to boost non-tax revenues in the backdrop of a significant shortfall in tax revenues, the government showed about three-fourth of the annual SBP profit in just six months. The central bank gave Rs145 billion in profit in six months against the annual target of Rs200 billion.
It has never happened in the past that the SBP gave 73% of its estimated annual profit in just six months. In 2012, it gave half of the annual profit in six months, in 2011 44%, in 2010 58% and in 2009 again 44%.
The SBP was requested to explain the sudden jump in profit and its response was awaited.
Similarly, the government had estimated that it would receive Rs11.9 billion in annual profit from Wapda on account of interest income on loans. But in six months, Wapda gave Rs47.6 billion, according to documents.
The federal government deducted past receivables from Wapda from the current year’s payments, explained an official of the Ministry of Finance.
The cash-based accounting system can easily be manipulated and this is what has been done, according to a former central banker. He said if the government recovered its income share while clearing the previous year’s circular debt, the income should also have been reflected in previous fiscal’s non-tax revenues.
Wapda spokesman was not available for comments.
For the full year, the government had estimated Rs23.8 billion in interest income from all public sector enterprises, but in six months it got Rs58 billion, the documents showed. Pakistan Atomic Energy Commission also gave Rs8.5 billion in interest income.
The government has already taken away Rs67.7 billion in funds from telecom companies to bridge the shortfall.
Notwithstanding the higher non-tax revenues, tax revenues stood at Rs1.025 trillion or 41.4% of the annual target.
Published in The Express Tribune, February 11th, 2014.