Fiscal deficit data: a cause for serious concern

Estimates of fiscal deficit for the current fiscal year continue to be a cause of serious concern to the economic managers of the country, it was learnt. The fiscal deficit budgeted 4 percent of the GDP in 2011-12 was revised upward to 4.7 percent. The Damage Needs Assessment on the 2011 floods compiled by the World Bank and the Asian Development Bank estimated a fiscal deficit of 6.4 percent for the current fiscal year.
Sources in the Ministry of Finance have revealed that deficit for the first eight months is 3.8 percent and may reach 7 percent in case the expected revenue does not materialise.
An official said that Finance Minister Dr Abdul Hafeez Sheikh was not optimistic about materialisation of external inflows budgeted on account of 3-G licence, Coalition Support Fund (CSF) and Pakistan Telecommunication Company Limited (PTCL) privatisation during the current fiscal year at the meeting with business community on consultation of the budget for 2012-13.
An official said that the widening trade deficit of 42 percent during the period under review on account of marginal increase of 5.5 percent in exports and 17.5 percent increase in imports as well as Euro Zone crisis have been posing serious risks to the current account and foreign exchange reserves. He said that trade deficit rose from US $ 7.4 billion during July-February 2010-11 to US $ 10.5 billion in July-February 2011-12 while Foreign Direct Investment (FDI) declined from $ 1.1 billion to $ 0.6 in the current fiscal year, which are adding pressure on current account. Additional pressure on the current account, the economic team was quoted as saying, is feared due to rising oil price in the international market.
The economic team has reportedly shared growing challenges facing the economy during the meeting with business community and with the members of Economic Advisory Council (EAC). The meeting was informed that global output projected at 3.25 percent coupled with Euro zone crisis also poses challenge to the country. The Euro zone crisis is negatively impacting on the country's exports and security situation in the country continues to be a deterrent to investment - local as well as foreign.
The meeting was informed that remittance provided the only ray of sunshine supporting the current account, which increased from 6.9 billion dollars last year to 8.6 billion dollars in the current fiscal year. However, remittances alone may not be sufficient to support the current account deficit in case of a steep increase in oil prices in the international market owing to the Arab spring.