ISLAMABAD, Dec 1: The budget deficit rose to Rs139.461 billion or 1 per cent of the gross domestic product (GDP) in the first quarter of the current fiscal year against the full year target of 4.3 per cent owing to rise in non-development expenditures.

A slight surge has been witnessed in the military expenditures followed by highest-ever amount for servicing of domestic debt and spending of Rs56 billion in the first quarter quoted as “unidentified expenditures”.

A senior official in the finance ministry told Dawn on Monday that the unidentified amount was of subversion grants paid out to the provinces.

He said the government was containing expenditure within the overall budgetary targets despite pressing needs posed by war-on-terror and challenging law and order conditions.

“We are very much on target regarding budget deficit. If the trend remains the same in the next three quarters, our budget deficit will be around 4 per cent of GDP by end-June 2009,” he added.

The government is eying to scale down the budget deficit to 4.3 per cent by end-June 2009 from 7 per cent last year amid greater cuts in both development and non-development expenditures.

The latest statistics submitted to the International Monetary Fund (IMF) by the ministry of finance suggested the gap was filled through domestic resources mainly extensive borrowing from the central bank, which arrived at Rs139.488 billion in the first quarter of the current fiscal year.

Of these, the bank borrowing stood at Rs104.628 billion in July-Sept and Rs34.860 billion came from the non-bank borrowing. This highest-ever bank borrowing also pushed up the inflation to 25 per cent, the highest-ever in the country’s history, while the external financing went into negative by Rs27 million during the period under review.

Analysis of the figures also showed that Pakistan’s defence expenditure had outpaced development expenditures by almost double digit in the first quarter of the current fiscal year.

The defence expenditure during the July-Sept period this year has amounted to Rs82.181 billion, which stood at 27.7 per cent of the total annual allocation against development expenditure of Rs40.685 billion or 7.3 per cent.

An official source in the finance ministry said that at this pace of spending on defence, the government would hardly be able to fully utilise the budget amount of Rs550 billion set under Public Sector Development Programme (PSDP) for the full fiscal year 2008-09.

While the defence spending would easily cross the estimated amount of Rs296.07 billion projected in the budget by end-June 2009 owing to rising military expenditures on account of war-on-terror.

But the official said normally the releases of funds for development expenditures remained very slow in the first quarter but it would gain momentum in the remaining three quarters.

As agreed in the IMF programme, the prioritising of development expenditures would mean massive cut in the PSDP allocations for achieving the agreed budget deficit, which would ultimately result into low growth. This means low employment opportunities and more people would go below the poverty line.

Analysts said to make maximum utilisation of the PSDP funds would mean that the authorities would make hasty releases in the last quarters thus compromising on the quality of the project implementation.

Official figures duly verified by the Auditor-General of Pakistan Revenue and the State Bank of Pakistan also suggest that total expenditure during the first three months stood at 3.9 per cent of the GDP and out-paced revenue collection, which was recorded at 2.9 per cent of the GDP.

The country’s GDP is currently estimated at Rs13.384 trillion. The total public sector expenditure during the first three months of this year stood at Rs468.487 billion while current expenditure amounted to Rs427.802 billion during the same period.

Of this, the federal expenditure amounted to Rs312.692 billion, while provincial expenditure stood at Rs115.110 billion. As such, the total expenditure turned out to be 3.5 per cent of the GDP, while current expenditure amounted to 3.2 per cent of the GDP.

The total revenue amounted to Rs384.961 billion, of which the FBR revenue, surcharges and non-tax revenue amounted to Rs276.812 billion, Rs38.167 billion and Rs105.43 billion, respectively. Total interest payments during the July-Sept 2008 period amounted to Rs114.988 billion or 0.9 per cent of the GDP.