While the budget deficit poses serious challenges to the economy, federal and provincial governments have been violating the recommendations of National Finance Commission (NFC) Award to limit the fiscal deficit to 4.5 percent, reveals Finance Ministry's working paper.
Sources said that Finance Ministry's own working paper for NFC sub-group in tge actual fiscal position reveals closure of last fiscal year with 6.7 percent budget deficit against a budget target of 4.1 percent.
The combined budget deficit of the provinces was closed at 0.3 percent as opposed to estimated provincial budget surplus of Rs 347.3 billion for last fiscal year. The document further pointed out that Punjab government had closed the last fiscal year with a deficit of 0.2 percent and Sindh government with 0.1 percent deficit instead of providing surplus budget.
As per the recommendations of the 7th NFC award, the fiscal deficit is required to be contained below 4.5 percent but it remained well over the recommendations since the NFC Award. The main responsibilities entrusted to the federal and provincial government in the NFC were to achieve 15 percent tax to GDP ratio by 2014-15 and a path was r also recommended in this regard (Clause 2 of Article 9 of the Order.
The provincial and federal and provincial governments were also responsible to maintain fiscal discipline, both at federal and provincial levels (Clause 3 of Article 9 of the Order). Finance Ministry working paper adds that the imbalance of vertical sharing favours provinces compared to the federal government when compared with the spending needs. A comparison of the spending and receipts pattern of the federal and provincial governments of financial year 2016-17 based on June final civil accounts has been carried out.
The Ministry further stated that the gist of the structural imbalance discloses that out of the total receipts, 46 percent are available to the federal government while 54 percent to the provinces combined and of the total expenditure, 60 percent expenditure are incurred at federal level and 40 percent expenditure are incurred at provincial level. The comparison of the civil accounts also pointed out that the net receipts of Rs 2.455 trillion of the federal government is insufficient to meet the expenditure on defence and debt servicing, which was Rs 3.056 trillion and fiscal deficit of the federal government was 6.7 percent whereas the position of the provinces was stable and balanced.
Additionally, as per decision of the NEC, at the backdrop of 18th Constitutional Amendment, the provinces may borrow on the guarantee of provincial consolidated fund to the extent of 0.85 percent of the GDP in addition to the overdraft facility with the State Bank of Pakistan (SBP) and over the past seven financial year (under current NFC Award), the position of the federal government was almost the same as depicted in fiscal year 2016-17. The fiscal deficit remained above the prudent level. As per the recommendations of the 7th NFC award, the fiscal deficit is required to be contained below 4.5 percent. The position of the provincial governments during the current NFC award remained stable.
Finance Ministry also proposed in way forward and stated that options available for removing the imbalances in the revenue sharing structure were ;(i) enhanced revenue collection;(ii) revisiting the divisible pool compositing and sharing of obligatory expenditure relating to security and special areas etc.
in this regard, the ministry proposed that options can be considered; setting aside a percentage share for the government of AJ&K and Gilgit Baltistan; (ii) establishment of Fund for security related and disaster management expenditure;(iii) changing the composition of divisible pool and sharing of reduced cost of the energy. An official stated that these recommendations were proposed by the Finance Ministry and would be discussed during the meeting of the NFC award with the provincial governments.
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