ISLAMABAD, March 13: The overspending of public sector development allocations by the former ruling party just before elections caused a higher than expected budget deficit for the current fiscal year, Dawn has learnt.
Normally, the allocated funds for development remained unutilised for the whole year but this time political compulsion aimed at winning the elections forced the ruling clique to adopt a serious financial indiscipline that ultimately hit the development budget.
Well-placed sources told Dawn on Thursday that in the first quarter (July-September), former chief minister of Punjab Chaudhry Pervaiz Elahi spent over Rs100 billion out of a total annual allocation of Rs150 billion for the fiscal year 2007-08.
The government announced the election schedule on November 20, 2007 with a decision to ban allocations for launching of new development projects. As a result maximum funds were released against these development projects in a hurry both by the provincial government and the Planning Commission, the sources added.
The sources said due to this fiscal irresponsibility of the economic managers of the previous government, the budget deficit hiked to 3.6 per cent of GDP during the first half year compared with 1.9 per cent a year before.
An official source in the finance ministry said that due to higher than expected subsidies and overspending, the new government will face a budget deficit of 5 per cent against the projected target of 4 per cent.
The official said that the revenue shortfall of Rs35 billion in the first half year and billions of rupees dolled out under the head of subsidies for not increasing the oil and electricity prices also fuelled the budget deficit.
As the borrowing of the government increased manifold this year, the new government will also witness the violation of the Fiscal Responsibility Act as it is unlikely that debt-to-GDP ratio will record the agreed level of decline. It has been projected that a two per cent decline will be achieved annually in compliance to this act.
The official said to minimise the impact of budget deficit, the finance ministry has already asked the Planning Commission to withhold releasing of funds for new projects, which were not taken up till January 2008. These projects will be initiated from the new fiscal year 2008-09.
He said that cut in the current expenditures by the ministries, divisions and corporations would also spare an amount of Rs10-15 billion in the second half.
Analysts believe that none of the indicators -- revenue, inflation, exports -- are going to be achieved by the end of June 2008.
The highest ever trade deficit of $12.433 billion in eight months is also causing a serious threat to the country’s reserves as import bill is likely to reach $35 billion by the end of June.
The annual inflation would be around 9 per cent against the projected 6 per cent.
According to statistics, the government has dolled out Rs80 billion subsidies for not passing the increase in oil prices to domestic consumers till February 29. However, the finance ministry projected a hit of Rs48 billion from March to June period if the price remained the same.
As the price has already reached $110 per barrel in the international market, the total subsidies would be around Rs140 billion by the end-year. However, the Saudi government gave Pakistan a grant of $300 million to help it offset pressure on its economy as a result of rising oil prices.
Similarly, the subsidy for not increasing the electricity prices will amount to Rs56 billion.
Due to the massive subsidies and financial indiscipline, the government is unlikely to achieve its growth target rate of 7.2 per cent for this fiscal year. The State Bank of Pakistan has cut its forecast to 6.6-7 per cent.
