A SPELL OF DEFICIT BUDGETS
STABILIZATION IS 'LIVING WITHIN MEANS', SAYS HINA KHAR
TARIQ AHMED SAEEDI (firstname.lastname@example.org)
June 22 - 28, 2009
That expenditures outweigh revenue is not new in this part of the world. Every time at the outset of new fiscal year when budget is presented it becomes predetermined that expenditures following allocations would exceed available resources. That actually happens in end but without adequate account of reasons of expansion throughout year. Overestimated expenditures scupper the project, prevent the takeoff sometimes. A government college principal told this scribe he was self-restrained in spending money towards renovation as the fund was too big to spend hassle-free in a short span, which he had before the fund was rolled back. His extreme cautiousness on final auditing also slowed project spending, a staff member said.
Besides, the hype of new budget is so overwhelming as to make unimportant counterchecking of, for instance, what drove expenditures way ahead of resources. Not a single be it federal or sub-central budgets declare to have breakeven point let alone surplus at the end of upcoming financial year (2009-10). All set in overtures to deficit budgets. For this budget, however, budget makers deserve a candid praise as they have come up with exactly the fiscal deficit demanded of them by international monetary funds. IMF wants Pakistan to keep fiscal deficit at 4.9% of total gross development products of the country in next fiscal year. For the next fiscal year government projects Rs2174 billion revenue and Rs2897 billion expenditures, making overall fiscal deficit of Rs722.5 billion, which is around 4.9% of GDP.
Outgoing FY09 would end up with 3.3 percent budget deficit according to the budget speech. What makes a budget a deficit budget? It is obvious when revenue is smaller than expenditures. Alternatively, when resources become insufficient to level rising needs fulfilment expenditures this occurs. Can this spending actually be gauged beforehand within the scenario characterized by the high degree of unpredictability of socio-economic indicators in Pakistan? The answer could be yes and no simultaneously.
The next fiscal year will pass as did last one with resolve being on resource gap filling more than factors causing that gap, though it is the challenge to narrow revenue-expenditures gap throughout the next fiscal year for the government. Next fiscal year will witness a paradigm shift from stabilization to economic growth according to the government. It seems that government will break the intentionally imposed stagnancy on economic growth by relaxing tight measures. The increasing federal budget size indicates that government may adopt measures to stimulate growth. However, the government has no intention to come out completely of stabilization mode, as it has announced no significant bailout packages for industries on the verge of loosing strength in the budget.
While government considers 85% increase in development expenditures to Rs783 billion from Rs421 billion and PSDP allocation to Rs626 billion from Rs359 billion as recipe for revival of the growth, yet now the thrust of the government seems to be towards revenue generation for lightening external liabilities or meeting international debt obligations instead of re transferring dividends to industries objectively. Generating revenue has been difficult for the government in past. Inefficiency of tax collectors in collecting taxes has made revision of tax revenue target more than once this fiscal year. From over Rs1300 billion the target was revised to Rs1250 and then to Rs1179 billion for FY09.
Tax is a major source of revenue and therefore its appropriate collection would determine funds availability. In case of collection below expectation, government has to approach other sources of finance to disburse budgetary allocations. Otherwise, owing to resource gap too it has to seek finances to meet development and non-development expenditures in central and provinces as per divisible pool. While it is expected that budget deficit will come down to 3.3 percent after arrival of Rs178 billion donations pledged during donors' conference and Rs48 billion for internally displaced people, surely further finances will be needed to fill the resource gap. Non-materialization of pledges will not only scuttle the expectation but also result in widening of the gap that would need international space fillers. Finance Adviser Shaukat Tarin has already told that IMF's $4 billion is in pipeline as insurance against fiscal emergency.
Government has set Rs1375 billion tax-target for the fiscal 2009-10. In order to scale up tax ratio, which is currently 9% of GDP, to 9.6% government has to rectify tax structure, as has been retold by several experts. Equally, it needs to take audacious actions to expand the tax base. Such actions were absent also this time round in the budget speech. For example, agriculture sector again has remained untouchable. Though a tax target is set for the sector province-wise, the amount forms a minuscule of total allocations for the sector. The only levy is in shape of various fees which federal food and livestock departments receive from agriculture sector. Sindh government has budgeted Rs200 million levies on agriculture sector this fiscal year. In FY09, the government received Rs190 million in taxes from the sector, an amount less than that to meet grant requested for Sindh Assembly expenditures. At the same time, allocation on agriculture, irrigation, land reclamation etc. has inched up by 89 percent to Rs4.8 billion from Rs2.3 billion. Federal government has increased PSDP allocation for agriculture sector by 25 percent to Rs18 billion from Rs14.4 billion in fiscal 2008-09. Proposed agriculture income tax can become an important source of revenue to save a large number of populations from heavy indirect taxation.
Through new tax measures and administrative reforms, federal government is expecting to enhance net revenue by Rs94 billion. One thing is worth record that government has doubled withholding tax on import to 4 percent that will translate in to rise in prices of imported goods including massively consumable items like pulses, edible oil, spices, etc. The effect would be impactful for food inflation. Furthermore, utilization of annual funds is necessary to avoid heavy throw forwarded to forthcoming financial year.