Rise in budget deficit rings alarm bells

ISLAMABAD: Total size of Pakistan’s economy has increased to Rs27.384 trillion but it has grown less than projected level, putting budget deficit target of 4.9 percent of GDP agreed with the IMF in danger zone for the outgoing fiscal year 2014-15.
With this development, the alarm bells have started ringing at Q Block (Finance Ministry) after missing out in achieving desired size of the national economy because the government may miss the budget deficit target by margin of 0.3 percent of GDP, jacking it up to 5.2 percent against agreed target of 4.9 percent of GDP.
Earlier, one percent of GDP was estimated in rupee term at Rs290 billion but after decreasing size, the one percent of GDP declined to Rs273 billion. The size of the economy for calculating budget deficit was decreased by Rs78 billion.
The size of the economy has decreased if we compare with initial estimates done by Finance Ministry as the size of the country’s economy went up to Rs27.384 trillion during the outgoing fiscal year 2014-15 against estimated value of Rs29 trillion on the basis of which the budget deficit target of 4.9 percent was finalised with the IMF.
The option with the economic managers is further fiscal adjustment of Rs78 billion by increasing revenues or curtailing expenditures for achieving deficit target of 4.9 percent of GDP or let the deficit to hike and touch 5.2 percent.
“Now it has created difficulties for the gurus of Finance Ministry to keep the budget deficit at desired level of 4.9 percent of GDP which may touch 5.2 percent of GDP by end June 2015,” official sources confirmed to The News here on Saturday.
Subsequently, the figure of budget deficit for first nine months (July to March) for fiscal year 2014-15, which stood at 3.6 percent and duly endorsed by the IMF in talks at Dubai, had now increased to 3.8 percent of GDP so it surged by 0.2 percent of GDP because of changes in size of the country’s national economy.
Assuming that the government achieves its revenue collection and restricts its expenditures within the envisaged level even then the gap of Rs78 billion or 0.3 percent of GDP has emerged which will either be adjusted or the budget deficit will be hiked up to 5.2 percent of GDP against the desired target of 4.9 percent of GDP for 2014-15.
Although, Finance Ministry’s top officials do not concede publicly the arising difficult situation that has emerged for them in the aftermath of National Accounts Committee (NCA) meeting that had recently finalised GDP growth figure of 4.24 percent for the current fiscal year.
The size of the economy, which did not grow up to the desired mark, mainly because of decreased deflator as the government had estimated that it would be standing at 8 percent but it grew at 3.6 percent for the outgoing fiscal year.
The nominal growth for which the government had estimated growth of 13.5 percent but it grew by 8.2 percent only. The nominal growth has two components, first is real GDP growth that stands at 4.2 percent for current fiscal year against envisaged target of 5.1 percent. The second component is inflation for which the government had projected a target of 8 percent but it was now estimated at 4 percent for whole year ending on June 30, 2015.
With the revision of last year GDP’s growth rate to 4.03 percent from initial estimates of 4.1 percent, the budget deficit rose to 5.6 percent of GDP for 2013-14 against provisional estimates of 5.5 percent.Now the government will have to convince the IMF for slight marginal increase in the budget deficit as they consider it as sacrosanct target in eyes of Washington based institution.