ISLAMABAD – The government has decided to start implementing revenue and power sector reforms by doing away with all exemptions under the general sales tax and subsidies on power tariff and petroleum products from February 1.
Official sources said the political leadership made the decision after the economic team informed it in clear terms that the national exchequer was left with no fiscal space to continue bearing Rs 20 billion per month in power tariff differential subsidy and Rs 5 billion subsidy on petroleum products.
The government has already missed its revised upward budget deficit target for the first half of the fiscal year set at 2.6 percent of GDP, as the budget deficit during July-December is estimated at three percent of GDP. This projects that the fiscal deficit for the current fiscal would be over 6 percent of GDP or Rs 1 trillion. The government will be totally dependent on the central bank to print notes to bridge the gap if it failed to mobilise additional revenue resources.
The economic team warned the government that if it failed to curtail the fiscal deficit, it would lead to hyperinflation that would further deteriorate the law and order situation in the country. The worsening of the situation on the economic front would further isolate Pakistan in the international arena, the sources said. The bleak picture of the economy was presented to the prime minister on Friday by the economic team led by the finance minister, the sources said, adding that it forced the political leadership to implement the painful economic reforms from February 1. The meeting was informed that power subsidies, reversal of oil price hike, additional security expenditures were the main causes of the rising budget deficit during first half of the current fiscal year. It was also decided that all forms of subsidies would be done away with immediately. The government has set up a five-member committee under the finance minister to hold meetings with the heads of various political parties in order to develop a national consensus on economic reforms.
Meanwhile, official figures of Poverty Reduction Strategy Paper (PRSP) released by the Ministry of Finance on Saturday show that the budgetary spending on law and order has jumped by 17.1 percent to Rs 34.5 billion in the first quarter of the current fiscal year as compared Rs 29.4 billion incurred during the same period last fiscal year. The federal government’s expenses on law and order during the period under review went up to Rs 11.2 billion against Rs 9.2 billion in the same period last fiscal.
The cost of law and order of the Punjab government soared to Rs 12.06 billion for the first quarter, as compared to Rs 10.9 billion for the corresponding period last year. Sindh spent Rs 6.1 billion on law and order, up from Rs 5.06 billion, while Khyber Pakhtunkhwa’s expenditure increased to Rs 3.2 billion from Rs 2.5 billion. Balochistan spent Rs 1.7 billion during the first quarter compared to Rs 1.6 billion last year.
