5
ISLAMABAD: Pakistan’s budget deficit for the current fiscal year is likely to reach around 6 per cent of GDP — almost 2pc higher than the 3.9pc budgetary limit — based on varying projections of the government and the International Monetary Fund (IMF).
The IMF had put Pakistan’s fiscal deficit for 2016-17 at 6.3pc of GDP — about 0.5pc higher than the official accounts closed at 5.8pc.
“The staff estimates the underlying deficit to have been about 0.5pc of GDP higher (6.3pc) after accounting for one-off asset sales,” IMF said in a detailed report on Pakistan’s economy released on the weekend.
These include the sale of a government-owned printing press to the State Bank of Pakistan, selling a public enterprise (namely LNG-based power project) to a government-owned development fund, and appropriation of funds from dormant public saving schemes accounts as non-tax revenue.
The government has been claiming 5.8pc deficit for 2016-17 against the 3.8pc budgeted target.
The IMF said the fiscal deficit in the first quarter of 2017-18 has already crossed 1.2pc of GDP compared to 1.3pc of GDP in the same period last year, helped by strong growth of over 20pc in revenue collection by the Federal Board of Revenue.
Based on the first quarter performance, the IMF has estimated the fiscal deficit, excluding grants, for the current year at Rs1.956 trillion or 5.5pc of GDP against Rs1.864tr in 2016-17. This is despite the fact that the Fund has projected that the country would contain public sector development programme (PSDP) for the current year at Rs800 billion — almost 0.5pc of GDP or Rs200bn — lower than the budgeted amount of Rs1.001tr.
Adviser to the Prime Minister on Finance, Revenue and Economic Affairs Dr Miftah Ismail, on the other hand, disagreed that despite IMF projections there was any limit on utilisation of funds for development projects that could go well beyond Rs900bn.
That would mean the fiscal deficit would be around 6pc of GDP in case the IMF projections for federal development budget materialise. Also, the IMF has estimated the provincial development budget to be contained at Rs961bn against budget allocations of Rs1.112tr to create an additional space of Rs151bn.
In case the IMF estimates about the federal and provincial budgets come true, the gap only on account of development programme would be around Rs350bn — almost 1pc of GDP.
Mr Ismail has repeatedly said in recent days that he would make sure that the fiscal deficit is contained between 5-5.2pc of GDP at all costs. The IMF said that the fiscal risks also stemmed from continued loss-making in public sector enterprises as privatisation and restructuring of key loss-making entities have been largely on hold.
Meanwhile, financial losses by the state-owned airline and steel mills have continued to accrue, while the accumulation of new payment arrears of power distribution companies (so-called “circular debt”) — which was brought to near zero by the end of 2015-16 — has resumed, reaching Rs193bn (0.5pc of GDP) since July 2016, with an accumulated stock of such arrears of Rs514bn (1.5pc of GDP) by end-December 2017.
The combined accumulated losses by these entities has now exceeded Rs1.2tr (4pc of GDP), which could eventually lead to a sizable demand for budgetary resources. In addition, inter-agency arrears in the gas sector, although still low, have been rising, reflecting limitations in the current cross-subsidisation arrangement between the two publicly-owned gas companies and delays in updating gas tariffs, the IMF said.
Published in Dawn, March 21st, 2018
