ISLAMABAD: Pakistan’s fiscal deficit touched 2.4 per cent of gross domestic product (GDP) in the first half of this fiscal year — the highest in four years — despite government’s claims of greater fiscal discipline.

The data suggests the government has relaxed fiscal discipline after lifting of the tighter controls of the International Monetary Fund (IMF) under the three-year extended fund facility which ended in September 2016.

The half-year deficit this year is a tad lower than 2.6pc of GDP in 2012-13, repeatedly condemned by Finance Minister Ishaq Dar. However, the full-year deficit was finally pitched at 8pc of GDP that year after accounting for Rs480 billion power sector circular debt.

Govt seems to have relaxed fiscal discipline after the end of IMF programme

The circular debt has again risen to over Rs330bn since then, with power sector’s receivables again standing in excess of Rs725bn at the end of December 2016.

As part of the budget 2016-17, the government has set a target of containing fiscal deficit below 3.8pc of GDP, but the actual deficit has moved past 2.4pc of GDP (more than 63pc of the limit), according to details of fiscal operations released by the finance ministry on Tuesday.

The current half-yearly deficit is higher than 1.7pc of GDP last year when full year deficit reached 4.6pc, and 2.2pc deficit in the first half of 2014-15 and 2.1pc in 2013-14. The full-year deficit stood at 5.3pc in 2014-15 and 5.5pc in 2013-14.

In absolute terms, the fiscal deficit in the first half of current year crossed Rs799bn, which is 55pc higher than Rs515bn a year ago.

The surge in fiscal deficit is not the only indicator of complacent fiscal discipline after the end of the IMF programme under which the government showed an exemplary discipline and completed all the 12 milestones with condonable slippages.

The summary of fiscal operations also showed deterioration of government on both fronts — expenditure control and revenue collection — in July-December. For example, total revenue collection stood at 5.9pc of GDP during the period compared with 6.5pc a year ago. It was also lower than 6pc of 2014-15, 6.4pc in 2013-14 and 6.2pc in 2012-13.

Total expenditure amounted to 8.3pc (Rs2.79tr) of GDP compared with 8.2pc (Rs2.5tr) a year earlier. Revenue collection by the Federal Board of Revenue stood at 5.2pc of GDP, lower than 5.3pc of GDP last year, while non-tax revenue also stood at 0.7pc of GDP this year compared to 1.2pc of GDP last year.

The defence expenditure stayed flat at 1pc of GDP in the first half of current year and last year, lower than 1.1pc of GDP in 2014-15.

Mark-up payments in the first half of the current fiscal year were recorded at 1.9pc of GDP against 2.1pc over the last two years.

On the other hand, the finance ministry reported ‘statistical discrepancy’ of Rs58bn in the first six months of the current year, with a steep surge from negative Rs8.8bn of the same period last year — a sign of lenient financial reporting.

The increase in overall deficit was also contributed by extravagant expenditures made by the provinces led by Khyber Pakhtunkhwa. The cash surplus offered by the four provinces declined from Rs80bn in the first quarter of the year to almost half at Rs42.16bn. While the KP government exceeded its expenditure limit and offered a cash deficit of Rs34bn in the first half of the year, Punjab offered a cash surplus of Rs13bn, Sindh Rs30bn and Balochistan Rs33bn.

This showed all the provinces accelerated their spending in the second quarter as they provided a cash surplus of Rs80bn in the first quarter, with Punjab’s share at Rs49bn, Sindh’s Rs31bn and Balochistan’s Rs24bn. KP posted Rs25bn cash deficit in the first quarter.

Published in Dawn, February 15th, 2017