The country’s budget deficit for the first nine months of FY11 has climbed to a ‘concerning’ Rs 783 billion or 4.5 percent of the gross domestic product (GDP) due to, what the analysts said, poor revenue collections and exorbitant government expenditures. Analysts believe that economic managers of the country seemed unlikely to succeed in arresting the annual fiscal deficit at the targeted 5.5 percent during the current financial year owing to poor non-tax revenue collections and fast growing expenditures.
“The situation is concerning as the (budget) deficit seems to reach six percent of the GDP (by this year’s end) against the targeted 5.5 percent,” Farhan, an analyst at Invest-Cap Research, told Pakistan Today. The Ministry of Finance data shows that the cash-strapped federal government had to borrow Rs 700 billion ($ 8.1 billion) and Rs 83 billion ($ 0.97 billion) from the domestic and external lenders to finance the Rs 783 billion deficit.
“Budget deficit stood at 4.5 percent of the GDP during 9MFY11 period, financed by Rs 700 billion from domestic and Rs 83 billion from external borrowings,” said InvestCap Head of Research Khurram Schehzad. Making the government accountable for striking a balance between its revenues and operational expenditures, the analysts said whereas the official spending were growing robustly at 12 percent the pace of government’s revenue collection was legging far behind at three percent.
“The current expenditures appear to be the prime source of concern with a 14 percent growth,” Farhan said. The analysts said the government had failed to perform well on the non-tax revenue front with its “dividends” witnessing a major decline of 27 percent over the corresponding period last year. Referring to official figures, Farhan said the government’s dividends during first nine months of the current fiscal year stood at Rs 29.5 billion, registering a shortfall of Rs 13.5 billion or 31 percent when compared with Rs 43 billion of same period last year.
“While OGDC’s dividends did not come during the second quarter, the overall dividends remained poor,” the analyst said. Farhan went on to say that even the State Bank of Pakistan had witnessed a shortfall of Rs 58 billion in its profits during July-March FY11. Accumulatively, the analyst said, the government’s non-tax revenue collections had seen a slump of around Rs 10 billion over the last corresponding months. He said that, during July-March FY10, the government had collected Rs 387 billion as non-tax revenue against Rs 377 billion in the current financial year.
The country’s budget deficit stood at 1.6 percent or Rs 276.176 billion of GDP during the first quarter, July-September, while the first half of FY11, July-December, saw the deficit further widening to 2.9 percent or Rs 490.391 billion. This swelling trend in the fiscal deficit, if not arrested, would fall heavily on the politico-strategically embattled but cash-strapped federal government which is believed to have already crowded out the growth-oriented private sector through its heavy reliance on bank borrowings to cater its budgetary needs.
The current 4.5 percent fiscal deficit would also be distasteful for Pakistan’s international lenders, especially those from the International Monetary Fund who, under a loan agreement, were assured by Islamabad that the fiscal deficit would be kept at 4.9 percent. Some of the analysts see sufficient foreign inflows as an only sustainable remedy to check the widening fiscal deficit in Pakistan where terrorism and political instability always keep the foreign investors at bay.
The politically embattled PPP-led coalition government once again seems to have started expanding the federal cabinet through recent inductions from new and old political friends from the Pakistan Muslim League-Q and Muttahida Qaumi Movement.
