Govt likely to contain budget deficit at 4pc in 2016/17

ISLAMABAD: The budget deficit may be logged at four percent in the next fiscal year of 2016/17, slightly up from an earlier projection of 3.8 percent, as the growth target revision will compel the government to tweak its fiscal framework, sources said on Saturday.

The government scaled down the GDP growth’s forecast to 5.7 percent from 6.2 percent for the upcoming fiscal on the insistence of the Planning Commission

The well-placed sources told The News that the government has to bring changes in its whole macroeconomic and fiscal framework and subsequently the budget deficit will be widened to exactly 3.99 percent for 2016-17.

Previously, Pakistan and the International Monetary Fund (IMF) set the budget deficit target of 3.8 percent for 2016/17 but due to changes in figures of macroeconomic framework, it will have an impact on the country’s fiscal position. 

The IMF may take up this issue with the Pakistan’s authorities but Islamabad’s economic managers are confident that the government will keep the budget deficit at the level of 4.3 percent as well as achieve the revenue target of Rs3,104 billion set for the Federal Board of Revenue for the current fiscal year. They don’t expect any problem from the IMF in upcoming review talks or on the occasion of approving of the next tranche by June-end.

The GDP on basis of market price is projected to increase to Rs33,063 billion in the next fiscal year as against Rs29,598 billion in the outgoing fiscal year ending on June 30.

The GDP growth was projected at 6.2 percent for the next fiscal in the budget strategy paper, prepared by the Finance Division and approved by the federal cabinet in April this year. On the basis of nominal growth (GDP growth plus inflation), the macroeconomic and fiscal framework were devised.

After having seen decrease in growth to 4.7 percent mainly because of the poorly performed agriculture sector in the current fiscal year – envisaged target was 5.5 percent – the Planning Commission viewed that the GDP growth target for the next fiscal year seemed unrealistic so it should be brought down from 6.2 percent to 5.7 percent.

The commission also raised an objection over the current account deficit forecast. The finance ministry had projected the deficit in the range of $3.3 billion in the coming fiscal year as against $1.7 billion in the outgoing fiscal year.

Minister for Planning Ahsan Iqbal, in a letter to the finance minister just ahead of a recent Annual Plan Coordination Committee’s (APCC) meeting, asked him to cut the growth figure in line with the realistic macroeconomic picture.

One top official of the Finance Division said the commission did its homework well, “so its 5.7 percent growth number was finally endorsed by the finance division.”

Before the APCC meeting, the finance and planning managers held consultation and finally agreed on the said figure, while increasing current account deficit from $3.3 billion to $4.8 billion for the coming fiscal year.

Explaining the reason, the official said the activities under the China-Pakistan Economic Corridor projects will pick up pace to widen gap between imports and exports. “Keeping that in view, the current account deficit was projected to go up and the commission considers that it will be standing over $4.8 billion in next budget,” he confirmed.