Revised target a challenge sans fiscal reforms: SBP

The State Bank of Pakistan on Saturday said the achievement of revised fiscal deficit target would be a challenge in the absence of fiscal reforms. According to SBP Monetary Policy Statement at the beginning of the fiscal year, the announced fiscal deficit target was Rs 685 billion (4 percent of GDP) that was revised to Rs 812 billion (4.7 percent of GDP) in the aftermath of devastating floods.
The provisional data from the financing side of the budget, however, suggests that the deficit has probably beginning to touch Rs 500 billion by the close of first half of current fiscal year. Thus, even meeting the revised target would be a challenge in the absence of fiscal reforms. Tax collection of Rs 661 billion by the Federal Board of Revenue (FBR) during July-December 2010 shows a growth of 13 percent only. While, growth rate of 26 percent was estimated, at the beginning of the fiscal year, to achieve the full year target of Rs 1667 billion.
Therefore, SBP sees a shortfall in revenue receipts and at the same time more difficulties because of rising expenditures, primarily owing to subsidies for energy, food items, cash transfers, and security related activities. These fiscal developments have two implications. First, the overall demand for money is unlikely to fall down, which indicates high aggregate demand relative to current productive activity. Second, the private sector is likely to be squeezed out, which is contrary to what the economy needs for the revival of investment and growth, it added.