It discussed the budgetary framework of the current fiscal year 2014-15 and of the new fiscal year 2015-16 in a meeting chaired by Finance Minister Ishaq Dar. The meeting also discussed that the economic growth rate of 5.1% may not be achieved in the current fiscal year, anticipating a growth rate of around 4.5%.
Besides sticking to 4.9% of the Gross Domestic Product or Rs1.42 trillion budget deficit target for the time being, it decided that the indicated budget deficit of 4% of the GDP for the next fiscal year will again be reviewed next month once the final figures of the third quarter (January-March 2015) of the current fiscal year are available.
The officials said that there was a strong possibility that the budget deficit ceilings of the current fiscal year and the new fiscal year will be higher than indicated earlier. The budget deficit in the current fiscal year may be in range of 5.2% to 5.3% while it could be around 4.3% in the next fiscal year. However, officially the government will not admit it for the time being.
They added, as a contingency measure, that the government was anticipating additional income from the SBP and could also defer certain expenditure liabilities. The contingency plan is being worked out to bridge a minimum Rs150 billion, a hole that has surfaced due to the shortfall in tax revenues.
Against earlier expected income of Rs270 billion, the federal government is now seeking Rs290 billion from the SBP. The SBP’s earnings are getting a boost due to off-loading government shares in profitable banks.
The officials said the government had estimated a total Rs130 billion expenditures on IDPs and raising counter terrorism forces. However, they indicated that all of this would not be spent in the current fiscal year.
The government is also not booking expenditures being incurred on the Karachi nuclear power plants, aimed at sticking to the 4.9% of the GDP deficit target.
The budget deficit is the only area where the government can claim success, although economists like Dr Hafiz Pasha term it a result of creative accounting.
The officials said that another important factor that will determine the actual budget deficit of the current fiscal year and the proposed ceiling for the new fiscal year is the estimated economic growth rate. The government estimated that if rains did not adversely affect crops, the growth rate may be around 4.5%.
A higher economic growth rate – which increases the overall size of the economy – will result in a lower budget deficit.
The government had indicated that it would set the economic growth rate target at 6.1% for the new fiscal year. However, the target is expected to downward revise to 5.5% due to missing of this year’s goalpost.
While reviewing the schedule of preparatory activities for the 2015-16 budget, Dar asked his ministry to urgently finalise the budget strategy paper for the next fiscal year, according to a finance ministry handout.
The Ministry of Finance decided that the budget strategy paper would be submitted to the federal cabinet next week and presentation on the strategy to the Parliamentary Standing Committees on Finance and Revenue will be made in May. Budget proposals would be shared with stakeholders and meetings with businessmen and chambers would also take place in May.
The budget is likely to be announced in the last week of May or the first week of June as outlined in the budget activities schedule, according to the finance ministry.