ISLAMABAD: Pakistan’s fiscal deficit has started to increase soon after the conclusion of the International Monetary Fund (IMF) programme.

It clocked up at 1.3 per cent of gross domestic product (GDP) in the first quarter of 2016-17. This is the highest fiscal deficit in the first quarter of any fiscal year since the PML-N government came to power more than three years ago.

It may be seen as an early indication of a relative ease in fiscal discipline. The rise in fiscal deficit in July-September is the highest in four years.

The summary of fiscal operations released by the Ministry of Finance for July-Sept put the first-quarter deficit at Rs438 billion or 1.3pc of GDP against the limit of 3.8pc announced by Finance Minister Ishaq Dar for the full year. While the government has a lot of time at its disposal to reverse the situation, the rate of increase so far can take the full-year deficit to 5.2pc of GDP.

The deficit during the same period last year (2015-16) stood at 1.1pc of GDP (Rs328bn) against a budgetary limit of 4.3pc, which was later exceeded to 4.6pc of GDP.

Likewise, the first-quarter deficit in 2014-15 was recorded at 1.2pc of GDP (Rs337bn) against a target of 5pc, which later ended up at 5.3pc.

Similarly, the first-quarter deficit in 2013-14 (the first year of the PML-N government) was also recorded at 1.1pc of GDP (Rs287bn) when the full-year deficit reached 5.5pc of GDP.

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

For example, the total revenue in the first quarter of the current year stood at 2.6pc of GDP, showing a steep fall from 3.1pc of GDP of the same period last year. The total revenue during same period of 2014-15 and 2013-14 was recorded at 2.9pc and 3.2pc of GDP, respectively.

Tax revenues in the first quarter of the current year were also disappointing. They remained at 2.2pc of GDP as opposed to 2.4pc of the same period last year. They were 2.2pc and 2.1pc of GDP in 2014-15 and 2013-14, respectively.

The performance of non-tax revenue was no exception. It declined to a miserly 0.4pc of GDP in the first quarter of the current fiscal year against 0.7pc of GDP in both 2015-16 and 2014-15. The non-tax revenue in the first quarter of 2013-14 was recorded at 1.1pc of GDP.

Total expenditures in the first quarter of the current fiscal year were reported at 3.9pc of GDP, slightly lower than 4.1pc of the same period last year and 4pc in 2014-15.

The only constant in the last three years was a 0.6pc of GDP expenditure on development and net lending since 2014-15. The defence expenditure stood static on a year-on-year basis at 0.5pc of GDP in the first quarter of the current year, lower than 0.6pc of GDP in 2014-15.

Markup payments in the first quarter of the current fiscal year were recorded at 1.2pc of GDP against 1.4pc over the last two years.

In contrast, the finance ministry reported ‘statistical discrepancy’ of Rs38.6bn in the first three months of the current year, with a steep surge from Rs11.2bn of the same period last year – an increase of 245pc and a sign of lenient financial reporting.

The increase in the overall deficit was despite the fact that the provinces offered a healthy cash surplus of Rs80bn: Rs49bn came from Punjab, 31bn from Sindh and Rs24bn from Balochistan while Khyber Pakhtunkhwa exceeded its expenditure limit by Rs25bn in the first quarter of the current fiscal year.

Published in Dawn November 17th, 2016