ISLAMABAD: The Planning Commission (PC) has raised serious objections to the budget strategy paper cleared by the cabinet of Raja Pervez Ashraf for financial year 2013-14, saying it has concealed some major fiscal indicators and does not contain measures to achieve macroeconomic targets.
A finance ministry official told Dawn that deputy chairman of the PC Dr Nadeem-ul-Haque had pointed out in writing that revised fiscal deficit estimated at 6.5 per cent of the GDP for the current fiscal year was not based on facts and, therefore, target of 5.8 per cent of the GDP set for next year was unrealistic.
The PC believes that the total subsidies for the current year were revised from Rs237 billion to Rs345 billion, even though the normal power sector subsidies alone are estimated to have exceeded the revised target. This means that the impact of a number of decisions taken by the federal cabinet or its economic coordination committee for fertiliser, commodity operations and electricity subsidy for agriculture tube-wells during the year, were not accounted for.
Over the past five years the government has been estimating the fiscal deficit to be in the range of 4-5 per cent of the GDP which was never achieved and in fact it exceeded 6.5 per cent and 8.5 per cent last year. Therefore, the commission says some of the key expenditures were not considered while revising the fiscal deficit target which would also reflect in next year’s fiscal operations.
The finance ministry’s projection for consolidating the country’s ‘debt to GDP’ ratio by 0.7 per cent per year has not gone well with the planning commission. The budget strategy paper approved by the cabinet in the first week of March said the debt to GDP ratio was likely to exceed the limit of under 60 per cent prescribed in the fiscal responsibility and debt limitations act 2005 by June 30, 2013, based on fiscal deficit of 6.5 per cent.
To bring this ratio to under 60 per cent, the finance ministry says, it is laying “a path of fiscal consolidation of at least 0.7 per cent of GDP each year to achieve fiscal deficit target of 4.5 per cent by 2015-16”.
The PC believes that the budget strategy paper does not contain effective measures for reducing the debt to GDP ratio by 0.7 per cent each year. It said the finance ministry had been repeating to increase taxation by 0.5 per cent of GDP every year but that had not materialised over the last five years. Therefore, setting similar targets for a future government is unrealistic.
In the absence of a tangible revenue increase and because of increasing cost of debt servicing and other important expenditures including defence, continued reliance on borrowing will not create room for debt reduction.
The PC is of the view that the objective of increasing exports by 3-4 per cent and remittances by 7 per cent a year and foreign investment in excess of $5 billion over the medium term also seem unrealistic because an adaptable roadmap and policy measures have not been put in place when the country face serious energy shortages and security problem.
The budget strategy paper simply says that a roadmap is required for resolving the issue of circular debt, making structural adjustments in energy sector and fast track completion of energy-related projects. As part of the budget strategy paper, the federal cabinet also approved indicative budget ceiling for next fiscal year which concedes that the fundamental short-term risk is sustainability of foreign exchange reserves, which were $13 billion as on February 15 (including around $8.1 billion with the State Bank of Pakistan).
The budget paper explained that foreign exchange reserves held by the central bank are estimated to come down to $6.8 billion at the end of the current year from $8.1 billion and further drop to $5.2 billion during the next fiscal year.
The indicative budget ceiling for next year puts the allocation for defence expenditure at Rs627 billion from revised estimate of Rs570 billion during the current year against a budgetary target of Rs545 billion. The amount of subsidies has been estimated at Rs364 billion for next year against the revised current year expenditure of Rs345 billion, instead of budget target of Rs237 billion.
The public sector development programme for next year has been estimated at Rs450 billion, up from current year’s Rs360 billion.
The government concedes that its target for revenue collection at Rs2.535 trillion was likely to be missed and hence revised it downward to Rs2.316 trillion. The revenue target for next year has been set at Rs2.833 trillion.