Achieving budget deficit target: Govt’s desired fiscal framework becomes irrelevant

ISLAMABAD: The government wants to achieve budget deficit target of seven percent of GDP for the outgoing fiscal year and despite going close to the FBR’s desired target of Rs4,700 billion on June 30, 2021, the overall budget deficit might exceed in the wake of an overrun on the expenditure side.The government’s desired fiscal framework for achieving the budget deficit target of 6.3 percent of GDP has already become irrelevant before the kick-starting of the next financial year 2021-22.

The next fiscal year for 2021-22 will commence from tomorrow (Thursday) with effect from July 1, 2021 and will end on June 30, 2022. The fiscal targets envisaged by the government have already been shaken because of different developments that occurred on the economic front in the last few weeks.

The government had envisaged the budget deficit target of 6.3 percent of GDP for the next fiscal year whereby the primary deficit was set at 0.7 percent of GDP for the current fiscal year with the understanding that the IMF programme would be revived. The budget deficit was envisaged at 7 percent of GDP for the outgoing fiscal year ending on June 30, 2021.

However, this desired budget deficit target has become irrelevant and misplaced before kick-starting of the next financial year. Keeping in view practices of the past, the government had understated its expenditures and overestimated its tax as well as non-tax revenues. However, the budget deficit could not be brought down from 7.5 to 8 percent of GDP in the next fiscal year. The one percent of GDP is equivalent to Rs538 billion and an upsurge in the deficit in the range of 1.5 to 2 percent of GDP cannot be ruled out, keeping in view the recent developments that occurred on the economic front.

Former minister for finance Miftah Ismail, while talking to The News on Tuesday, stated that the government had envisaged revenue surplus of provinces to the tune of Rs570 billion but all the provinces generated only Rs14 billion surplus collectively, so the first target of achieving the budget deficit was missed with a massive margin of Rs556 billion.

Other top official sources said that the government wanted the FBR’s tax collection target of Rs5,829 billion, which was unlikely to be achieved. The FBR envisaged a tax collection target of Rs4,700 billion for the outgoing fiscal year and the collection could go up to Rs5.5 trillion maximum in the next fiscal year. The FBR wants collection of Rs610 billion through the petroleum levy, so it requires imposition of levy to the tune of Rs25 to 30 per litre for the whole financial year in order to materialize the desired collection. The sources said that the government would have to hike the prices of POL products but it would not be able to collect the whole amount, so there would be a shortfall of Rs200 to Rs300 billion.

Keeping in view all these developments on the fiscal framework, it will become harder for the economic managers to convince the IMF for revival of the stalled Fund Programme under the $6 billion Extended Fund Facility. It can only be achieved if the government demonstrates its ability to deliver on all challenging fronts in the first quarter of the current fiscal year, otherwise the revival of the IMF program will become a pipe dream.