Saudi gift of $1.5b being used on uplift projects to cut budget deficit

Islamabad: The government’s treatment of Saudi Arabia’s gift of $1.5 billion as capital receipts in shape of grant in aid and parked into Pakistan Development Fund (PDF), which has now been used in fiscal 2016-17 for acquiring shares of two power projects and paid Rs64 billion to the government as non-tax revenue receipts.

This non-tax revenue receipt of Rs64 billion will help slashing down the yawning budget deficit for financial year that ended on June 30, 2017.

Now the remaining amount of Rs93 billion against total parked amount of Rs157.198 billion or $1.5 billion has been lying with PDF which can be utilised for investing into any viable public or private sector infrastructure development projects in months and years ahead, said one top official of Finance Division.

“This treatment of Saudi Arabia’s gift is completely in line with the IMF’s definition to estimate the budget deficit and nothing wrong has been committed to understate the budget deficit for fiscal year 2016-17 ended on June 30, 2017,” one top official of Finance Division claimed while talking to The News in background discussions here on Wednesday.

However, one former finance secretary did not agree to the stance taken by Finance Ministry high-ups arguing that once this amount was booked as part of financing now it could be utilised as expenditure instead of government revenue as non-tax receipts. Now the IMF should come forward and explain whether it could be termed as double counting or part of normal process for calculating the deficit, he further argued but wished not to disclose his name.

Saudi Arabia had given gift of 1.5 billion dollars or Rs157.198 billion to Pakistan during the financial year 2013-14 and the government had shown through fiscal operation published at the website of Finance Division as part of external grants by putting into PDF.

Finance Ministry’s top official, who is known as guru of fiscal data, told The News that this grant money was treated as part of capital receipts and placed as below the line item in order to finance the deficit. He explained that this amount was not used to reduce the budget deficit for fiscal year 2013-14 rather it was treated as financing item.

He said that the IMF had scrutinised the gifted amount of $1.5 billion as at that time Islamabad was under the IMF funded programme of Extended Fund Facility (EFF). “We had satisfied the IMF team at that time because there was nothing wrong committed by the economic managers,” he argued.

This money, he said, was never taken as government revenue receipts but it was a foreign grant placed under external financing. This was booked as expense of federal government as grant in aid to Pakistan Development Fund Limited (PDFL).

The PDFL, the official said, has been incorporated as a non-banking financial institution with the objective of financing/investing in infrastructure projects. The PDFL identified two power projects Haveli Bahadur Shah and Balloki owned by National Power Parks Management Company (Pvt) Limited (NPPCML) where it could make investments out of available funds. After holding extensive consultations with stakeholders including Ministry of Water & Power, the PDFL injected money in these two projects and acquired shares worth Rs64 billion which was paid to the federal government as non-tax revenue receipts. Now this treatment as non-tax revenue receipts, he said, would help the government for reducing the budget deficit up to the extent of Rs64 billion.

To another query regarding finalising the budget deficit figure for the last fiscal year, the official said that they were waiting for external revenue receipts from the Economic Affairs Division and non-banking financing provided by Central Directorate of National Savings (CDNS) as they would share manual data from all avenues which would take couple of weeks to firm up the deficit figures. “Currently its only guess work but the final figure of budget deficit will be ascertained only when details of all accounts will be made available,” the official concluded.