ISLAMABAD, Sept 1: The budget deficit rose to a record Rs777.2 billion or 7.4 per cent of gross domestic product (GDP) during 2007-08 and was met through the highest ever bank borrowing of Rs625 billion and over Rs75 billion cut in development expenditure.

According to provisional consolidated budgetary operations released by the ministry of finance, the country’s fiscal deficit increased by 95 per cent over the budgetary target of Rs398 billion. The deficit was 106 per cent higher than previous year’s actual deficit of about Rs377 billion or 4.3 per cent of GDP.

As percentage of GDP, the fiscal deficit stood at 7.4 per cent against 4.2 per cent target set by the previous government for 2007-08. As a result, the government had to depend on bank borrowing of Rs625 billion against the budgetary target of Rs81 billion, showing a rise of about 673 per cent. The domestic bank borrowing for deficit financing during 2006-07 was Rs178 billion, which was 251 per cent lower than last year.

The federal government had to restrict development spending under the Public Sector Development Programme to Rs451 billion against the budgetary allocation of Rs520 billion in an attempt to partially contain the deficit.

The most depressing feature was a massive reduction in revenue receipts that declined to 14.3 per cent of GDP compared with 14.9 per cent in 2006-07. In absolute terms, however, the total revenue increased by almost Rs200 billion and stood at Rs1.499 trillion compared with Rs1.297 trillion in 2006-07. Tax revenue also declined to 10 per cent from 10.2 per cent in 2006-07. Non-tax revenue dropped to 4.3 per cent from 4.7 per cent in 2006-07.

In contrast, the total expenditure in 2007-08 increased substantially to 21.7 per cent compared with 19.2 per cent a year before. In absolute terms, the total expenditure amounted to Rs2.276 trillion against Rs1.675 trillion in 2006-07, showing an increase of more than Rs600 billion or 36 per cent.

Likewise, current expenditure amounted to Rs1.858 trillion against Rs1.375 trillion in 2006-07, showing an increase of Rs482 billion or 35 per cent. As percentage of GDP, the expenditure increased to 17.7 per cent from 15.8 per cent a year before.

Although the defence expenditure increased to Rs286 billion against an allocation of Rs275 billion, it declined as percentage of GDP to 2.7 per cent from 2.9 per cent in 2006-07.

The government earned about Rs89 billion on account of royalties on oil and gas, discount retained on domestic crude oil production and development surcharge on oil and gas, which included Rs14.4 billion of petroleum development levy. The amount was about Rs8 billion more than the budgetary estimates of Rs81 billion, but Rs4 billion less than Rs93 billion in 2006-07.