ISLAMABAD, Jan 28: The federal government has rejected the five-year revenue and expenditure projections submitted by the provinces to the National Finance Commission (NFC) as these could jeopardise the macro-economic stability and increase the overall fiscal deficit upto 9.5 per cent of GDP, Dawn has learnt from authoritative sources.

The provinces have been told in very unequivocal terms by the federal government that these unrealistic projections are "untenable and unacceptable", an NFC member revealed to Dawn.

Accordingly, the provinces have been asked to reduce their expenditure projections by at least 50 per cent and increase their revenues so that the overall deficit remains below four per cent as targeted under the Poverty Reduction Strategy Paper (PRSP).

The federal government is of the view that PRSP, which was finalised through a lengthy consultation process with the provincial governments, multilateral donors and all the other stakeholders, could not be altered.

Moreover, the government is bound under the fiscal responsibility and debt limitation law (FRDL) introduced in parliament to bring down fiscal deficit to zero level in the next 10 years and the two aspects -PRSP and FRDL - were interdependent and could not be violated at any cost.

The issue would, however, continue to remain a bone of contention between the federation and its federating units because the provinces' expectations from the NFC are very high, an official of the Punjab government said.

Under the final PRSP released early this month, the overall fiscal deficit has been projected at four per cent of GDP during the current fiscal (2003-04). The fiscal deficit has been estimated under the PRSP to come down to 3.9 per cent of GDP in 2004-05, 3.8 per cent in 2005-06, 3.6 per cent in 2006-07, 3.5 per cent in 2007-08 and 3.4 per cent of GDP in 2008-09.

The official data available with Dawn suggest that based on provincial projections, the federal government has prepared a consolidated form of revenue and expenditure projections which presents a very bleak picture of the national economy.

In a low-case scenario, the overall fiscal deficit for the year 2003-04 has been estimated at Rs361 billion, which would increase to Rs403 billion in 2004-05, Rs439 billion in 2005-06, Rs466 billion in 2006-07, Rs497 billion in 2007-08 and Rs531 billion in 2008-09.

In percentage terms (under low case), the over fiscal deficit has been projected at 8.2 per cent of GDP in 2003-04, 8.3 per cent in 2004-05, 8.1 per cent in 2005-06, 7.8 per cent of GDP in 2006-07, 7.5 per cent in 2007-08 and 7.1 per cent of GDP in 2008-09.

In the high-case scenario, the overall fiscal deficit has been projected at Rs411 billion in 2003-04, Rs461 billion in 2004-05, Rs505 billion in 2005-06, Rs541 billion in 2006-07, Rs581 billion in 2007-08 and Rs627 billion in 2008-09.

In this case, the overall fiscal deficit is estimated at 9.3 per cent of GDP during the current fiscal year. This is projected to go up to 9.5 per cent of GDP in 2004-05, and then start declining to 9.4 per cent of GDP in 2005-06, 9.0 per cent in 2006-07, 8.7 per cent in 2007-08 and 8.4 per cent of GDP in 2008- 09.

The GDP at market price is projected at Rs4.42 trillion for the current fiscal under the PRSP. The GDP (MP) is projected to increase to Rs4.875 trillion in 2004-05, Rs5.397 trillion in 2005-06, Rs5.997 trillion in 2006-07, Rs6.668 trillion in 2007-08 and Rs7.428 trillion in 2008-09.