Tuesday April 23, 2024

Provinces help in keeping budget deficit below 9pc of GDP

By Mehtab Haider
August 29, 2019

ISLAMABAD: Pakistan’s budget deficit would have definitely crossed 9 percent of Gross Domestic Product (GDP) in the fiscal year 2018-19 if the provinces had failed to generate revenue surplus of Rs138.87 billion.

With highest ever budget deficit of Rs3,444 billion or 8.9 percent of GDP under first year rule of PTI, Pakistan’s primary deficit also climbed to 3.6 percent of GDP for 2018-19.

Now under the IMF agreement for $6 billion bailout package, the PTI-led government has agreed with the Fund to slash the primary deficit from 3.6 percent of GDP in 2018-19 to 0.6 percent of GDP in current fiscal year, indicating that Islamabad requires to cut down the deficit 3 percent of GDP during the ongoing financial year 2019-20.

Keeping in view such a massive fiscal adjustment in single year, the independent economists took stance that it was almost impossible to bring down primary deficit so sharply under prevailing scenario. So running of the IMF programme has entered into danger zone.

On other hand, the PTI regime is thumping over its achievement on economic front especially on curtailing the current account deficit of around $6 billion mainly through import compression and now they were making promises to bring sigh of relief for the common people.

According to fiscal operation for 2018-19 released by Ministry of Finance showed that although the revenue surplus of provinces could not yield the desired results for generating envisaged amount of Rs285.6 billion for 2018-19 as the provinces ended up providing a surplus of Rs138 billion, helping the Center to curtail the consolidated budget deficit below 9 percent and displaying exactly at level of 8.9 percent of GDP till June 2019. Although, the revenue surplus generated by the provinces went up to Rs138.87 in 2018-19 against Rs22.37 billion in 2017-18. This revenue surplus of Rs138 billion curtailed the deficit below 9 percent of GDP in the last financial year.

Two largest provinces Sindh and Punjab generated revenue surplus of Rs55.6 billion and Rs48.8 billion respectively in the last financial year 2018-19. KP and Balochistan have raised revenue surplus of Rs17.10 billion and Rs17.13 billion respectively.

Now the PTI government has envisaged revenue surplus of Rs423 billion for the current fiscal year and except Punjab no province had estimated any surplus for this financial year when the country was under the tight scrutiny of the IMF programme.

In the aftermath of NFC Award and 18th Constitutional Amendment, the Finance Ministry gurus had found a solution to incentivise the provinces to throw revenue surplus by end of every fiscal year in order to curtail the budget deficit and in return the federal government would pay mark up on the amount.

However, fiscal coordination among the center and provinces has been weakening with passage of time despite this fact that the IMF mission took provinces into confidence on requirement of fiscal coordination before signing staff level agreement with Pakistani authorities.

In the wake of slippages on fiscal front especially on primary deficit target and inability of the provinces to generate required revenue surplus is all set to pave the way for triggering threat for suspension of Fund programme anytime in the second half of the current fiscal year.