ISLAMABAD - Pakistan budget deficit remained at higher side of 6.5 percent of the GDP at average during last eight years mainly due to massive transfers of resources from federal government to four provinces under 7th National Finance Commission (NFC) award.

“Since FY (Fiscal Year) 2012, net revenue receipts of federal government on average were 7.5% of GDP while expenditures on average remained at 14%,” Federal Secretary Finance Arif Ahmad Khan briefed the four provinces during the first meeting of the ninth NFC in his presentation other day. The budget deficit was recorded at 6.5 percent of the GDP at average in last eight years.

One of major reasons behind higher fiscal deficit is massive transfer of resources to provinces. Under the NFC award, the federal government has to transfer 57.5 percent of federal taxes to the four provinces in every fiscal year. The federal government has to meet the expenditures of debt servicing, defence, development, pensions, salaries and others through remaining 42.5 percent of the taxes. Ultimately, the federal government had to borrow to meet the deficit, which goes out of control.

According to the document, which was shared in the ninth NFC meeting, the budget deficit had touched Rs1.72 trillion (8.6 percent of the GDP) during the fiscal year 2011-12. Later, the deficit had increased to Rs1.89 trillion (8.4 percent of the GDP) in the year 2012-13. However, the deficit was reduced to Rs1.6 trillion (6.4 percent of the GDP) in 2013-14 and to Rs1.58 trillion (5.7 percent of the GDP) in 2014-15. The budget deficit was recorded at Rs1.6 trillion (5.4 percent of the GDP) in 2015-16. The deficit in 2016-17 had enhanced to Rs1.8 trillion (5.8pc of the GDP) and Rs2.24 trillion (6.3 percent of the GDP) in 2017-18.

The country’s budget deficit would widen to Rs2.39 trillion in the current financial year, which would be equal to 6.3 percent of the gross domestic product (GDP). The budget deficit would be highest ever by exceeding the previous level of Rs2.24 trillion. The gross revenue receipts are estimated at Rs5.57 trillion in the year 2018-19. Under the 7th NFC award, the federal government would have to transfer Rs2.58 trillion to the four provinces. The net revenue receipts left with the federal government would be Rs2.99 trillion after transferring funds to provinces. On the other hand, the country’s expenditures are projected at Rs5.38 trillion for the ongoing fiscal year. In expenditures, the current expenditures are estimated at Rs4.8 trillion and development budget at Rs575 billion.

The International Monetary Fund (IMF) had already expressed reservations over the NFC award, a resource sharing formula between federal government and provinces. According to the IMF, overall, the 7th NFC Award has resulted in an unbalanced and less flexible intergovernmental fiscal framework. It recommended that next NFC should aim to strengthen macroeconomic stability and increase efficiency, flexibility, and responsiveness of the fiscal framework.