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February 10, 2019

Govt plans to restrict budget deficit within limits of 5.6pc

National

February 10, 2019

ISLAMABAD: Owing to increasing fears among independent economists for escalating the budget deficit close to 7 percent of GDP, the PTI led government has made Plan B by relying upon three major back loaded transactions in order to restrict the budget deficit within limits of revised estimates of 5.6 percent of GDP during the current fiscal year.

If major transactions fail to materialize in the remaining period of the ongoing fiscal year then the budget deficit might hike to 7 percent of GDP against 6.6 percent of GDP in the last financial year 2017-18 under PML-N led regime.

On expenditure side, there was expected overrun on account of debt servicing and defence because of devaluation of rupee against dollar. Alone the debt servicing will be hiked significantly in the ongoing fiscal year. Owing to pressing requirements of debt servicing, the government has revised upward the budget deficit up to 5.6 percent of GDP against earlier envisaged target of 5.1 percent of GDP.

When Federal Minister for Finance Asad Umar was asked about hiking of budget deficit close to 7 percent of GDP for the ongoing fiscal year, he said that the government devised back loaded arrangement to restrict the budget deficit at 5.6 percent of GDP till end June 2019. He said the budget deficit could maximum go up slightly over the revised target of 5.6 percent of GDP but he ruled out the possibility of even nearing towards the projected deficit figure of 7 percent of GDP by independent economists.

He said the government conceded after monetary and fiscal coordination board meeting that challenging situation persisted over fiscal fronts and they were making efforts to come up viable solutions.

When asked about back loaded strategy devised by the PTI led regime, he said that the privatization of two RLNG power plants would be finalised during the current fiscal year. The renewal of licenses of telecom operators, he said, would be done within the current fiscal year. These two measures, he said, could fetch substantial amounts and would help in achieving the desired budget deficit target. However, he refused to share third major transaction lying in the pipeline for achieving the desired objective.

However, the official sources said that it could prove hard nut to crack for expecting finalization of two RLNG power plants transactions within the current fiscal year. It requires approval from regulatory regimes and expectation of fulfilling all requirements within ongoing fiscal year might not be possible. The renewal of licenses of mobile operators will be done but it is yet to ascertain that how much money they are going to deposit before June 30 deadline because usually this amount is going to deposit in three installments. Another possible avenue for generating revenues is resolution of GIDC issues as the government is expecting some revenues on this account, added the sources.

“The budget deficit is projected to go up close to 7 percent of GDP owing to lose fiscal policies,” said renowned economist Dr Hafiz A Pasha while talking to this scribe this week.

Dr Pasha said the tax incentives provided through finance supplementary (second amendment) bill 2019 were estimated to the tune of more than Rs50 billion for six month period instead of government’s claim of Rs6.8 billion only, adding that the tax concession on cotton was going to cause Rs30 billion loss.

The withdrawal of withholding tax for filers will cause revenue loss of Rs17 billion, he added. The full year (12 month) incentive impact, he said, was estimated at Rs 80 billion. He said that in the wake of expected revenue shortfall and overrun in expenditure the escalation of budget deficit was on the cards for the current fiscal, he concluded.

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