Budget deficit of last fiscal may touch Rs3,300 bn

ISLAMABAD: The initial estimates for fiscal year 2018-19 under first year rule of the PTI suggest that Pakistan’s budget deficit is going to witness new heights of touching Rs3,300 billion, one of the highest ever absolute figure in whole history of Pakistan.

This budget deficit exceeding Rs3,300 billion or 8.5 percent of Gross Domestic Product (GDP) will have far-reaching negative impact for the fiscal adjustments under $6 billion IMF programme. The primary deficit has been estimated at negative 3.4 percent of GDP and Pakistan will have to bring it at negative 0.6 percent of GDP in line with IMF agreement. Pakistani authorities are clueless as to how the government will make adjustments of 2.8 percent of GDP to bring down the primary deficit at 0.6 percent.

Secondly, the Ministry of Finance made wrong projections before the Parliament in fourth consecutive year. When contacted, former finance minister and renowned economist Dr Hafeez A Pasha said that the budget deficit would be climbing to 8.6 percent of GDP for the last fiscal year 2018-19 against revised estimates of 7.2 percent of GDP for this period. However, it appears to have been significantly understated by the Ministry of Finance, he said and added that they were doing the same practice from last four consecutive years.

An alternative approach has been adopted for quantification of the deficit involving the determination of the borrowing by the government from different sources to finance the deficit.

According to the State Bank of Pakistan (SBP), the total bank borrowing by the government in 2018-19 is Rs2,182 billion, with Rs2,937 billion from the SBP and retirement of debt with the commercial banks of Rs755 billion. External borrowing up to May 2019 is estimated at Rs535 billion while the magnitude of non-bank borrowing is Rs626 billion, also up to May 2019. Therefore, the total borrowing aggregates to at least Rs3,343 billion.

The bottom line is that the budget deficit in 2018-19 is above 8.6 percent of the GDP, he stated and added that the target was 5.1 percent of the GDP for the last fiscal year. The actual deficit has exceeded the target deficit by as much as Rs964 billion. This reflects poorly on the quality of financial management by the Ministry of Finance, he maintained.

“The budget deficit is estimated at more than 8 percent of GDP for end June 2019 but the final figure of fiscal operation will be released after 45 days of compilation of accounts,” top official sources confirmed to The News here on Tuesday and added that the government would release official figures of budget deficit by mid- August 2019. The revenue estimates of the FBR and non-tax revenue estimates are in the process of reconciliation with the AGPR and then the external data will be made available by Economic Affairs Division (EAD) in next two weeks. Finally, the SBP data will be available after reconciliation and the ministry will be able to post it out through release of fiscal operation within the envisaged limit of 45 days.

One of the top official said that the FBR’s revenue collection stood at Rs3,832-3,842 billion against revised target of Rs4,150 billion, thus showing a shortfall of Rs318 billion or close to 1 percent of GDP. The non-tax revenue target was facing also some problems, so the revised estimates may not be materialised.

The expenditure side also witnessed some pressures so the budget deficit is all set to exceed Rs3,300 billion for the last financial year.

However, Minister of State for Economic Affairs Division Hammad Azhar stated in his tweet that net increase in External Public Debt Stock of Pakistan in FY18-19 was approximately $2.5 billion versus $8.6 billion in previous year. Net increase in total external debt & liabilities stood at $10 billion in FY18-19 vs $13.3 billion in previous year. The external debt repayment + servicing consumed $9.1 billion in FY18-19 versus $5.8 billion in previous year.