KARACHI, June 2: Budget deficit that had sunk to 0.8 per cent of GDP during the first half of this fiscal year shot up to 1.6 per cent in the third quarter ending in March 2004.

But even at this level the budget deficit is much lower than the initial target of 4 per cent set for this full fiscal year ending in June 2004. Data released by the Ministry of Finance on its website shows that the budget deficit that had fallen to Rs33.7 billion at end- December 2003 jumped to Rs71.2 billion at end-March 2004.

This happened as the total identified expenditures rose from Rs412.8 billion at end-December to Rs626.6 billion at end-March whereas total revenue increased from Rs379.1 billion to Rs555.4 billion. Budget deficit is the difference between the identified expenditures and total revenue.

What is encouraging to observe is that the government met the budget deficit entirely through domestic sources and did not use external resources for this purpose. Its borrowings from domestic resources at Rs87.9 billion up to March 2004 was rather higher than needed for financing the budget deficit.

So it used part of it (Rs25.2bn) to retire its external liabilities. The break-up of the government borrowing shows that the major chunk of it (Rs53.6bn) was raised from banks and only Rs34.3 billion from non-bank sources.

A close analysis of the increase in total identified expenses from Rs412.8 billion at end-December to Rs626.6 billion at end-March shows that current expenditures moved up much faster than development expenditures.

Current expenditures went up from Rs352.5 billion at end- December 2003 to Rs536.1 billion at end-March 2004 showing an increase of Rs183.6 billion or 52 per cent. Against that development expenditures rose from Rs63.7 billion to Rs94.7 billion during this period showing a growth of Rs31 billion or 48 per cent.

In addition to that the government also made net lending of Rs9.6 billion. Whereas identified expenditures were at Rs626.6 billion at end-March total expenditures stood around Rs631 billion as Rs4.2 billion expenditures remained unidentified.

But even at Rs631 billion total expenditures in the first nine months were at 14.3 per cent of GDP against the target of 22.1 per cent set for this fiscal year. The break-up of the current expenditure shows that a major chunk of was used in the defence and in interest payments on domestic loans.

In nine months to March 2004 defence expenses totalled Rs129.2 billion whereas interest payments on domestic loans consumed Rs109.2 billion. The government also had to dish out Rs31.2 billion for interest payments on foreign loans.

So total expenses on domestic and foreign loans combined stood at Rs140.4 billion making this head of expenses the largest one. On the income side total revenue of Rs555.4 billion as of end-March 2004 included Rs424.7 billion tax revenue and Rs130.7 billion non-tax revenue: the tax revenue at this level was 9.6 per cent of GDP and non-tax revenue was at 3 per cent. The full fiscal year target for the tax revenue is 13.7 per cent of GDP.