LAHORE, June 28: The federal budget for the fiscal 2008-09 may have understated expenditure on account of interest payments, federal and provincial salary bill, subsidies and development expenditure by Rs410 billion and overstated the growth in the expected tax revenue target by 7.5 per cent to 25 per cent over the outgoing year’s Rs1 trillion.

A study – A risky Federal Budget 2008-09 – by a private university estimates that the level of current and development expenditure could exceed the budget estimates for 2008-09 by almost Rs360 billion (if the government actually manages to curtail its non-salary bill by Rs50 billion and adjust part of the understated expenditure accordingly).

“This implies that the fiscal deficit in 2008-09 could rise substantially beyond the projected level of 4.7 per cent of GDP to almost 7.5 per cent. In this scenario, there will be no fiscal adjustment and the fiscal deficit will remain very high, says the paper authored by Dr Hafeez Pasha and Dr Aisha Ghaus Pasha.

The paper says the sharp reduction in the fiscal deficit to 4.7 per cent of GDP is predicated on a reduction in current expenditure of four per cent and a big jump in net revenue receipts of 18 per cent. “Consequently, even with the large deficit reduction, there appears to be scope for increasing the overall PSDP of the federal and provincial governments combined by almost 20pc.

It says the finance minister has indicated that the government proposes to ban the purchase of motorcars, air-conditioners and other office equipment. “Also, freezing of non-development, non-salary expenditure will take place at the 2007-08 level.It further states that the normal growth in tax revenues would be about 17.5 per cent in line with the expected growth of nominal GDP next year due to the additional revenue likely to be generated from the taxation measures announced by the government.

Interest payments, the paper says, are expected to increase from Rs502 billion to Rs523 billion, showing a modest growth of only four per cent. “As in the last two years, there is the likelihood of a significant understatement of this expenditure, especially since domestic debt is likely to increase by over 20 per cent in view of the large fiscal deficit.

The government’s announcement to increase pay and allowances and pensions of its serving and retired employees by 20 per cent and minimum pension from Rs300 to Rs2000, double the conveyance allowance for employees from BS-1 to BS-19, raise medical allowance for employees in BS-1 to BS-16 and enhance minimum wages from Rs4600 to Rs6000 per month, claims the paper, has not been incorporated in the current expenditure estimates for 2008-09. “Based on the figures contained in the Demand for Grants and Appropriations we estimate that the pension and salary hike will add about Rs15 billion to defence expenditure and Rs20 billion on the civilian side at the federal level.

The additional cost to the four provincial governments could approach Rs30 billion, thereby reducing the provincial surplus accordingly.”

On development programme, it says the combined PSDP of the four provincial governments has been projected at Rs150 billion. But the combined PSDP of the four provinces could exceed Rs290 billion, which is Rs140 billion more than the size mentioned in the budget documents.