FY14: Missed targets, cuts in development spending

SBP’s unexplained profits kept federal receipts at budgetary level.

ISLAMABAD:

Contrary to official claims of attaining fiscal discipline during its first year, the federal government breached the limit of expenditures and recorded a budget deficit of Rs1.75 trillion or 6.9% of the total size of the economy in the last fiscal year.

Despite drastically cutting development spending, the budget deficit was Rs79 billion or 0.3% of Gross Domestic Product (GDP), higher than the limit approved by the National Assembly, according to final civil accounts of the fiscal year 2013-14 released by the Ministry of Finance.

The federal government missed its targets of increasing tax revenues and curtailing expenses. However, it surpassed non-tax revenue target by Rs216 billion on the back of an unprecedented profit of the State Bank of Pakistan (SBP). Due to this, the total gross federal receipts remained at budgetary estimated level of Rs3.4 trillion.

For the previous fiscal year, the government had estimated its tax receipts at Rs2.6 trillion and the expenditures were estimated at Rs3.6 trillion. According to fiscal operations summary, the tax revenues remained at Rs2.37 trillion, which were Rs224 billion less than the estimates. Similarly, the total expenditures soared to Rs3.76 trillion –higher by Rs168 billion.

The stated defence spending remained at Rs623 billion, surprisingly Rs4 billion less than the defence budget of the previous fiscal year. However, like the previous years, the significant needs of defence were met by extending them ‘grants’ aimed at understating the actual spending.

The fiscal results of the previous fiscal year belie the federal government’s claim of ensuring discipline within one year of its rule. The government posted 6.9% of the GDP budget deficit despite not clearing the circular debt of around Rs290 billion, which is 1.2% of GDP. Further, the government has not given any explanation from where the SBP posted the historical profit of Rs326 billion. They had estimated SBP’s profit to be Rs200 billion.

The Federal Board of Revenue collected Rs2.266 trillion in taxes – an amount that was Rs209 billion less than its original target approved by the Parliament. The shortfall was both on account of income tax and indirect taxes.

To finance the federal budget deficit, the government borrowed an additional Rs512 billion from foreign lenders while raising Rs1.1 trillion from the domestic market. The remaining amount was obtained from the four federating units. The provinces’ budgets were in surpluses.

Overall deficit

In the last fiscal year, the overall budget deficit, including province budgets, was recorded at Rs1.388 trillion – that was even better than the expectations of the International Monetary Fund (IMF). Under the $6.7 billion bailout programme, the IMF had asked the government to restrict the budget deficit to 5.8% of GDP. The sole reason for the exceptional performance was the Rs196 billion surplus that the four provinces generated as against the federal government’s estimates of just Rs23 billion.

The provinces could not spend their development budgets and earned profits by keeping their balances with the federal government.

The overall revenues inclusive of provinces stood at Rs3.7 trillion as against the expenditures of Rs5.1 trillion at the end of the last fiscal year, according to the Ministry of Finance. Punjab posted surplus of Rs98.5 billion, Sindh Rs37.7 billion, Khyber-Pakthunkhwa Rs40.4 billion and Balochistan Rs20.4 billion.

After the 18th Amendment in the constitution, the responsibilities of health and education have been transferred to the provinces. However, despite having resources at hand, the provinces have so far remained unable to improve human development indicators, according to various official reports.

Published in The Express Tribune, August 30^th, 2014.

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