ISLAMABAD - Pakistan’s budget deficit could touch to Rs 2 trillion at the end of the ongoing financial year 2012-13 owing to the mismanagement of incumbent government.

“Pakistan budget deficit can go beyond 8.5 percent of the GDP (equivalent to almost Rs 2 trillion) during the ongoing financial year 2012-13 due to several reasons particularly steps taken in last few days”, said Dr Ashfaque Hasan Khan, an eminent economist while talking to The Nation on Monday. The government has projected budget deficit would be 4.7 per cent of the GDP (Rs 1,110 billion) at the eve of budget 2012-13.

The budgeted fiscal deficit is likely to increase primarily due to shortfall in estimated FBR tax revenue by Rs 188 billion, non-realisation of fee from the Auction of 3G licences amount to Rs 79 billion, due amount of Rs 80 billion from Etisalat for privatisation of PTCL, Rs 50 billion from floating of Eurobond, increase in domestic interest liability due to higher fiscal deficit by around Rs 100 billion, increase in defence expenditure by Rs 30 billion due to increase in pays as a result of announcement by the Cabinet at the time of budget 2012-13 and reduction of anticipated surplus from provinces by Rs 30 billion, Rs 15 billion for providing for the supply of power to agricultural tubewells at a flat rate and increase in subsidy on electricity by Rs 108 billion due to non-increase in electricity tariff.

Sources said the budgetary allocation of power subsidies, which was Rs 185 billion, have already been consumed in six months (July-December) of the ongoing fiscal year and additional release for power sector would increase the budget deficit. Similarly, sources said that FBR might struggle to achieve the revise revenue collection target of Rs 2,193 billion that would also increase the deficit.

However, the official papers revealed that finance ministry has projected that budget deficit would go to around 6.5 percent of the GDP (around Rs 1,530 billion) against the target of 4.7 percent (Rs 1110 billion) during the ongoing financial year 2012-13. The International Monetary Fund (IMF) recently noted that Pakistan’s budget deficit would go to 7.5 per cent of the GDP (Rs 1,624 billion) during the ongoing financial year against the government’s target of 4.7 per cent of the GDP (Rs 1,110 billion). The State Bank of Pakistan, in monetary policy, noted that government would miss the budget deficit target by wide margin.

According to the official figures, Pakistan’s budget recorded at Rs 624.655 billion (2.6 per cent of GDP) during six months (July-December) of the fiscal year 2012-13. Country’s expenditures were recorded at Rs 2086.497 billion (8.8 per cent of GDP) against the revenue of Rs 1461.842 billion (6.2 per cent of GDP), leaving budget deficit at Rs 624.655 billion during the first half (July-December) of the current fiscal year. Pakistan received $1.8 billion from Untied States under Coalition Support Fund (CSF) in the first six months of the ongoing financial year 2012-13 and four provincial governments had recorded surplus budget of Rs 142.288 billion. Due to these two factors, country’s budget deficit remained on lower side at 2.6 percent of the gross domestic product (GDP), otherwise, it would have been at 3.0 or 3.1 percent of the GDP.

The Finance ministry documents noted that it is important to lay a path of fiscal consolidation of at least 0.7 percent of GDP each year. The aim is to achieve fiscal deficit target of 4.5 percent by the year 2015-16. To achieve this aim the following key recommendations are made: (i) Increase in taxation by 0.5 percent of GDP- key initiatives include; review of exemptions/zero rating regime, implementation of risk management system, tax registration enforcement initiatives, 2012 and Investment Tax Scheme, 2012, monitoring and reforms in Withholding tax system, tariff reforms aiming at simplification and elimination of exemptions and concessions, and roll out of customs automated clearance system; (ii) adoption of a roadmap of targeting subsidies to the poor and needy and removing subsidies for the high-income consumers of electricity, wheat and fertilizer. In this regard, the recommendation is to prepare a consensus driven roadmap for the medium-term; (iii) deepening of austerity measures- continuation of ban on new recruitment and purchase of durable goods (due to surplus durable goods from devolved Ministries), and rationalisation of fuel entitlement, traveling allowance and expenditure on stationery and newspaper periodicals.

In addition, identification of areas of savings and reallocation to high priority areas both in the recurrent and development budgets is required; and (iv) continuous engagement with the Provincial Governments for increasing provincial taxation and discussions on provincial savings.