Attempt to control deficit: IPR criticises government’s policy of ‘withholding releases’

Questions handling of budgetary expenditure and payments

ISLAMABAD: An independent think tank has criticised the federal government for holding back Rs117 billion worth of payments including Rs39 billion of the armed forces aimed at minimising gap between income and expenses which off shot the limits of the first quarter. 

In its critique of the federal government’s fiscal performance during July-September, Institute for Policy Reforms (IPR) has questioned the handling of budgetary expenditures and payments to the provinces by the Finance Ministry.

In July-September, the overall budget deficit stood at Rs326 billion or 1.1% of Gross Domestic Product, which the IPR said was a result of policy of “withholding releases”. Headed by former finance minister Dr Hafiz Pasha, the IPR said that the actual budget deficit would have been Rs443 billion or 1.5% of the GDP had the government not withheld releases to Ministry of Defense and the provinces.

Defence expenditure is expected to rise by 12% in fiscal year 2015-16, especially due to the Zarb-e-Azb operation. But in the first quarter, there was actually a decline of Rs19 billion or 11% over the same period of the last fiscal year. “This has led to saving of Rs39 billion, which is unlikely to be permanent in character,” it added.

The total amount to be transferred to the provinces during the quarter was Rs367 billion but the Finance Ministry restricted it to Rs289 billion, a large shortfall of Rs78 billion, said the IPR. It said the government resorted to this policy after it could not discipline provincial governments.

“It appears that the federal government has given up on trying to restrain expenditure by provincial governments and has found it expedient to hold back transfers towards the end of the quarter and thereby restricting expenditure”, according to the IPR observations.

The IPR warned that the practice will not go unnoticed and the provinces may take up the matter in the Council of Common Interests.

However, the spokesman for the Ministry of Finance said, “The Ministry of Finance cannot influence the spending pattern of the ministries and transfers to the provinces.”

The IPR said that current trend of expenses suggests that the actual budget deficit may widen to 5.3% of the GDP (Rs307 billion) which would be 1% of the GDP higher than the ceiling allowed by the International Monetary Fund. The IPR also projected Rs150 billion shortfalls in tax revenues against the Rs3.104 trillion target.

The IPR said that mark-up payments on debt continue to show growth of over 5%, despite the sharp fall in interest rates. This is due to the ‘lock-in’ effect of sale of PIBs worth Rs2.8 trillion in the last two years at relatively high rates of return. The Federal Budget of 2015-16 envisages no growth in cost of debt servicing. But if the trend of the last quarter persists then this will imply additional expenditure of over Rs65 billion, it added.

It said that the additional cost of the Prime Minister’s agriculture relief package of over Rs100 billion has yet to be factored in budgetary expenditures.

Published in The Express Tribune, November 20^th, 2015.

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