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ISLAMABAD, June 1: The budget makers have been given an ambitious target by the incoming PML-N government to bring down next year’s fiscal deficit by about 2.5 per cent of GDP through a combination of fresh revenue and expenditure control measures of over Rs550 billion.

Informed sources told Dawn that at a recent interaction with finance minister-designate Senator Ishaq Dar, senior officials of finance ministry gave out an understanding that current year’s budget deficit would be restricted within 7.5pc of GDP or less than Rs1.8 trillion.

Mr Dar told the bureaucrats that he would like the deficit to be scaled down by about 2.5pc of GDP and desired the budget makers to design next year’s budget on those lines.

Officials said the target could be achieved by increasing revenues by 1.5pc of GDP (about Rs350bn) and reduction in expenditure by about 1pc of GDP (about Rs230bn).

“This is over-ambitious target”, said a senior finance ministry official adding that perhaps no country in the world has ever been able to reduce fiscal deficit by 2.5pc in one year. “At best, we can reduce budget deficit by 2pc of GDP in a fiscal year.”

Recalling recent interactions with the International Monetary Fund, the official said the fund was looking at reducing fiscal deficit by 1.5pc of GDP but perhaps the new government wanted shock therapy to the economy.

The budget strategy paper approved by the previous government on March 7 had put current year deficit at 6.5pc but substantial injections into the power sector and lower revenue collections had resulted in jacking up deficit to about 7.5pc of GDP.

The finance ministry was earlier looking at reducing injections into the power sector to restrict overall subsidies at about Rs313bn against Rs364bn approved under the budget strategy paper.

The ministry would have to realign expenditures to limit subsidies below Rs300bn and reduce overall expenditures by around 3-5pc.

Against this year’s power sector subsidies of Rs120bn in the budget, the government has already spent about Rs350bn on tariff differential subsidies, which is expected to further go up by another Rs30bn in June.

Officials said the Federal Board of Revenue has already started issuance of statutory regulatory orders (SROs) for withdrawing tax exemptions on various sectors including construction sector and a long list of stationary items.

The process of SROs would continue in the coming days to make up for non-issuance of presidential ordinance to incorporate revenue measures of about Rs150bn.

In the next budget, the government was also expected to increase the rate of general sales tax from 16 to 17pc, expand taxation on services by the provincial governments and effectively bringing agricultural income in the tax net.

In case the government is able to limit current year’s fiscal deficit to 7.5pc as indicated by the finance ministry, the new finance minister would like the deficit target for next year at 5pc of GDP as against 5.8pc proposed in the budget strategy paper.

Officials said the finance ministry was planning to bring out Economic Survey 2012-13 on June 13 and announce next year’s federal budget on June 14 to take advantage of Saturday as weekly holiday after the budget announcement and start budget debate on Sunday.

There was also possibility that the budget be announced on Saturday (June 15) and start parliamentary debate on Monday (June 17) and hold two sessions of the national assembly on a daily basis to provide reasonable time to the parliamentarians to discuss budget proposals.

Officials said that caretaker prime minister’s adviser on finance Dr Shahid Amjad Chaudhry and secretary finance Dr Waqar Masood Khan were in constant contact with senator Ishaq Dar on budget making exercise.