Govt focuses on restricting budget deficit at four pc of GDP

ISLAMABAD: With announcement of coming budget for 2015-16 in the National Assembly on June 5, Finance Minister Ishaq Dar is going to restrict the budget deficit at 4 percent of Gross Domestic Product (GDP) by envisaging ambitious tax collection target of over Rs3 trillion and suppressing expenditures for another year to strengthen gains of macroeconomic stability.
“Yes, probably the budget will be announced by Finance Minister Ishaq Dar on June 5, 2015 in the Lower House of Parliament whereby the budget deficit will be restricted to 4 percent of GDP for the next fiscal year,” top official sources confirmed to The News after attending a high level meeting chaired by Finance Minister Ishaq Dar to finalise timeline for next budget here on Thursday.
It was planning in the meeting that the next budget would be probably announced by June 5, 2015 so the National Economic Council (NEC) was expected to meet under chairmanship of Prime Minister Nawaz Sharif by last week of May in order to approve development outlay for the next financial year.
On the budget deficit target, initially, there were two thoughts within the Finance Ministry either to convince the IMF for relaxing the budget deficit target beyond 4 percent of GDP by allowing the government to go into expansionary mode on fiscal side to jumpstart the economic activities but the gurus of economic managers finally agreed to restrict the deficit within the limit of 4 percent of GDP to keep the IMF programme intact under which the larger objective was curtailing the budget deficit to ensure broader economic stability.
Those who were in favour of expansionary fiscal policies argued that Pakistan had achieved macroeconomic stability and now there was need to jumpstart the economic activities by increasing public investments otherwise the economy might land into suppression mode. They argued that the country’s foreign currency reserves were touching close to $17.5 billion and now there was dire need of accelerated economic activities to achieve growth trajectory on sustained basis.
But the government preferred to the second thought where the focus would continue maintaining the budget deficit within the limit of 4 percent of GDP with the objective to strengthen the achieved macroeconomic stability.
Pakistan and the IMF are scheduled to hold next review talks under $6.64 billion in Dubai from May 1 to May 9, 2015 where the salient features of the coming budget would also come under discussion. The government, the sources said, would brief the IMF team about overall direction of the government policies by sharing broader picture where figure of the budget deficit got immense importance in eyes of the IMF.
“The IMF’s top guns consider budget deficit as sacrosanct target,” said the sources and added that the IMF had always pursued one shoe fit for all policy in the past but now its prescription for western and European world is altogether different from countries like Pakistan.
When renowned economist and Dean NUST Business School, (NBS) Dr Ashfaque H Khan was contacted for comments on Thursday, he said that given the current depressed economic environment in Pakistan, particularly when it was already facing deflationary pressures the four percent of budget deficit target will further suffocate the country’s economy.