Pakistan’s fiscal deficit was bound to increase in financial year 2017-18. The government is likely to set the next fiscal year’s budget deficit target at around Rs1.44 trillion. Owing to general election ahead there will be higher expenditure and relatively low revenues.
The International Monetary Fund (IMF) projects that the budget deficit may reach Rs1.5 trillion this year, however, the finance ministry does not seem to be in agreement with the IMF’s projection.
The government expects to keep fiscal space owing to the scheduled elections while IMF stresses that Pakistan stays steady on the path to fiscal consolidation.
The Finance Ministry is planning to set next fiscal year’s budget deficit target at around 4 percent of the GDP or Rs1.44 trillion. The budget deficit needs to be financed by borrowing from domestic and international sources.
The government will need to add a minimum of Rs1.5 trillion more through borrowing in its last year in power.
The finance ministry will be presenting the Budget Strategy Paper 2017-18 for approval of the federal cabinet.
The growing fiscal deficit has been a direct result of popular measures that the government resorted to after the announcement of the last budget.
The IMF program had concluded, the government may wish to maintain healthy relations with the IMF in expectation that it may need to borrow from the international fund in the future.
Maintaining the foreign exchange reserves at the current level may require monetary injection from the World Bank and the Asian Development Bank (ADB) owing to declining external sector.
The targeted fiscal deficit to be set at around 4 percent of GDP or Rs1.44 trillion, which is higher than 3.5 percent of GDP or Rs1.27 trillion it had projected previously in the medium term economic framework.
Following the conclusion of the Article-IV discussions with the IMF earlier this month, Finance Minister had projected that the budget deficit would reach 4.1 percent of the GDP or Rs1.376 trillion.
During the Article-IV consultations, the IMF insisted that the budget deficit would escalate to Rs1.511 trillion translating into 4.5pc of the GDP.
Pakistan, however, disagreed with the IMF projections. Tokhir Mirzoev, the Country Representative of the IMF in Islamabad stressed that the country should continue to follow the path of fiscal consolidation. He further said that the appropriate budget deficit target for next fiscal year would have to be based on the projection of the likely outcome of the fiscal year 2016-17, which is still under consideration.
The textile package was announced without having allocations in the budget. Due to the reversal of taxation policies during the ongoing fiscal year, a decline in tax revenues of Rs168 billion was noticed which rendered the Rs3.621 trillion annual targets unachievable.