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August 17, 2019

Govt not to make Rs1,257 bn cash balance part of budget deficit

Top Story

August 17, 2019

ISLAMABAD: The government is heading towards a new controversy as it is not going to include cash balance of Rs1,257 billion raised through borrowing as part of the budget deficit for end June 2019.

At a time when the Ministry of Finance is finalising its budget deficit close to 9 percent of GDP, the government is unclear how to treat cash balance of Rs1,257 billion, whether to make it part of the overall budget deficit or to keep it outside to show deficit within the limit of 8 to 9 percent of GDP. It is relevant to mention here that the PTI-led government in its first mini-budget in Oct 2018 envisaged the deficit at 5.1 percent of GDP. Now it’s exceeding beyond all limits as the revised estimates showed that it would be standing at 7.2 percent of the GDP.

If the government decides to make Rs1,257 billion cash balance as part of the budget deficit, it will result into escalating the deficit from 9 percent to 12 percent of GDP for end June 2019. However, if the government keeps it outside, it will cast doubt on transparency front and raise question on fiscal accounts of the government.

“Ministry of Finance is in process of finalising the budget deficit figures and it might be released very soon but the question arises how the cash balance of Rs1,257 billion will be treated in the budget deficit figures,” top official sources confirmed while talking to The News here on Friday.

The IMF programme has also entered into danger zone because the Fund has estimated to bring down the primary deficit from 1.8 percent of GDP to 0.6 percent of GDP in the current fiscal year. The latest estimates are showing that the primary balance will be standing at 3.4 to 3.8 percent of GDP for the last fiscal year ended on June 30, 2019 so how the primary deficit would be brought down to 0.6 percent in the range of 2.8 percent to 3.2 percent of GDP just in one year.

The overall debt of government went up by Rs7.6 trillion in first year rule of PTI from June to July 2018-19 as it stood at Rs31.784 trillion by end June 2019 against Rs24.212 trillion in June 2018.

It’s already unprecedented that the budget deficit is sky rocketing in the range of 8 to 9 percent of GDP in accordance with the calculation done by Ministry of Finance.

The IMF, Finance Ministry, State Bank of Pakistan and DG Debt Office at Finance Ministry have silently finalised debt arrangement and the SBP released debt data on its website without explaining details through footprint notes. When the figure of increasing the debt burden of Rs7.6 trillion was released by the SBP, it shocked everyone because the PTI-led government did not bother to explain that they made changes from converting short term loan into long term loan and also raised Rs1,257 billion to create a buffer in the aftermath of going under the IMF programme under which the government would have to abandon its borrowing from the central bank and would have to shift its reliance on commercial banks for raising financing to meet deficit requirements.

“All these steps would have far reaching impact on the economy but no one bothered to explain anything,” conceded top official. They said that now the deficit figure would be made public but it was unclear how the cash balance amount of Rs1,257 billion would be treated in the upcoming releasing of fiscal accounts.

In normal practice, the borrowed loan was booked as part of expenditure while this amount was raised before June 30, 2019 so it should be made part of the overall budget deficit for end June 2019. However, the government does not have any intention to make it part of the deficit.

This scribe made efforts to get official version of Spokesman for Finance Division and sent out question but got no reply till filing of this report.

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