ISLAMABAD: Pakistan’s fiscal deficit accumulated to a whopping 5.8 per cent of gross domestic product (GDP) and reached Rs1.864 trillion mark in absolute terms, the highest in four years of the PML-N government as well as in the country’s 70-year history.

Powered by devolution, the four provincial governments appeared pulling down the country’s fiscal resilience as they enter election mode with a spending spree, according to 2016-17 fiscal operations report of the federal government.

This was in sharp contrast to a 3.8pc limit budgeted for fiscal deficit set by Finance Minister Ishaq Dar for the financial year 2016-17 and approved by parliament and showed a loosening of fiscal discipline soon after the departure of International Monetary Fund (IMF) on completion of 3-year stabilisation programme in September 2016.

The 7th National Finance Commission Award in 2009 and 18th constitution amendment in 2010 transferred increased provincial share in the country’s total revenue by a big margin and empowered the provinces to administer additional responsibilities including health, education, etc. The PML-N, although part of this devolution, has since been trying to rebalance the arrangement.

The summary of consolidated federal and provincial budgetary operations 2016-17 released by the ministry of finance said the total budget deficit ending June 30, 2017 amounted to Rs1.864trn against a budgeted limit of Rs1.276trn, showing Rs588 billion worth of slippage.

Provincial governments charge into election mode with a spending spree

Finance Minister Ishaq Dar had pitched fiscal deficit at 8pc of GDP at the end of fiscal year 2013-14 on the conclusion of PPP’s five-year term. He had announced a gap between total receipts and expenditures of the PPP’s last year at Rs1.834trn after including the power sector circular debt worth Rs480bn.

He had claimed credit the following year for bringing down budget gap to 5.5pc of GDP as Pakistan entered the IMF programme after clearance of circular debt. The fresh accumulation of circular debt has since been estimated close to Rs500bn now.

Major contribution to the country’s historic fiscal deficit appeared to have come from the four provinces that were required to provide a cash surplus of about Rs339bn during the last financial year. Instead of surplus, the provinces together offered another deficit of more than Rs163bn – making a net slippage of around Rs502bn.

The highest deficit was booked by PTI-led Khyber Pakhtunkhwa at Rs75bn, followed by PPP-led Sindh with Rs61.5bn. PML-N-led Balochistan government also contributed its bit with overspending of Rs22bn while the Punjab government posted Rs4.95bn deficit.

Provincial expenditure also surged to 5.4pc of GDP in 2016-17 against 4.8pc of GDP four years ago in 2013-14.

The armed forces also exceeded their revised expenditure ceiling by Rs47bn by spending more than Rs888bn during fiscal year 2016-17 against Rs841bn sanctioned by the parliament. The defence expenditure amounted to 2.8pc of GDP during 2016-17 relatively higher than compared to 2.6pc of GDP in 2015-16.

The remaining net deficit – roughly estimated around Rs40bn – was contributed by the federal government. In absolute terms, the federal government posted Rs1.778trn at the end of fiscal year ending on June 30, 2017, against a budgeted limit of Rs1.615trn.

The federal government also missed its targets set for financing of deficit. Against Rs820bn budgeted for external loans, the government was able to materialise Rs541bn and ended up raising Rs1.3trn from domestic borrowing against the Rs1.04trn target.

In overall terms, the total expenditure of the federal and provincial governments was put at Rs6.8trn against budgetary estimates of around Rs6.3trn for 2016-17.

On the positive side, total revenues inched up to 15.5pc of GDP last year compared to 13pc of GDP in 2012-13 and 14.3pc of 2013-14.

Tax revenue also improved to 12.5pc of GDP last year compared to 10.1pc four years ago. Non-tax revenue, on the other hand, slipped to 3pc of GDP last year against 4.2pc four years ago.

Total expenditure also jumped to 21.3pc last year against 19.8pc four years ago. Here, the federal government expenditure was put at 10.9pc of GDP last year against 11.2 pc four years ago.

Development expenditure on the other hand also increased to 5.3pc of GDP or Rs1.69trn in 2016-17 compared to 4.4pc of GDP or Rs1.185trn in 2013-14.

Published in Dawn, September 6th, 2017

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