Fiscal deficit may soar to 7.5 percent: more disappointment for IMF

The government borrowing from the State Bank and commercial banks has created enormous problems for the economic managers and it is feared that the fiscal deficit for the current fiscal year may go up to 7.5 percent, 2.8 percent higher than the target agreed with the International Monetary Fund (IMF), said an official of the Ministry of Finance.
The current picture of the economy is very bleak and all the estimates indicate serious slippage on fiscal side as the federal government borrowing from the central bank rose to Rs 328 billion by mid December 2010 and is expected to go up to Rs 600 billion if Rs 2 billion daily borrowing from the SBP continued for the remaining period of the current fiscal year.
In addition, the government has raised Rs 88 billion through sale of treasury bills to commercial banks by December 12. With the increase in domestic borrowing and discount rate, interest payments are likely to increase, on domestic and foreign borrowing, from Rs 699 billion allocated in the budget to over Rs 720 billion. The allocated amount of interest rate was calculated on the basis of 5.1 percent fiscal deficit, sources added.
Sources in the Finance Ministry further revealed that the government was unlikely to realise receipts on account of National Saving Schemes as specified in the budget for 2010-11 and the shortfall under this account is estimated at around Rs 40 to Rs 50 billion. With respect to 3 G licenses the government is unlikely to realise the budgetary target of Rs 60 billion.
Failure to ensure the passage of the General Sales Tax Bill 2010 and Finance Amendment Bill 2010 in parliament would lead to non-materialisation of additional revenue to the tune of Rs 62 billion. This amount was to be realised as follows: Rs 12 billion on account of increase in FED from 1 to 2 percent, Rs 30 billion on account of flood surcharge and Rs 20 billion from RGST.
A shortfall of Rs 80 billion is feared in revenue collection of Federal Board of Revenue (FBR) as total collection for the current fiscal year is expected to reach Rs 1575 billion instead of Rs 1655 estimated budgetary revenue projection for the current fiscal year.
With power sector reforms tediously slow due to public outcry it is expected that the government would be unable to eliminate subsidies entirely and it is expected that Rs 145 billion additional subsidy would be injected. Initially, Rs 30 billion subsidy was earmarked in the budget, which was enhanced to Rs 67 billion. The subsidy, exclusive of the announced monthly 2 percent increase in power tariff, may reach Rs 215 billion by the end of the year. Sources said financial team is said to have given a briefing to the Prime Minister about the bleak situation of the economy.
An official of the Ministry of Finance said in case of de-linking from the International Monetary Fund (IMF) programme, Pakistan may face serious economic problems and there is a strong possibility that funding by multilaterals as well as bilaterals may dry up including inflow on account of Kerry Lugar package. As much as Rs 185.8 billion may be compromised.
In addition, reliance on domestic borrowing would skyrocket which is a highly inflationary policy. Macroeconomic indicators, the Finance Ministry sources added, would go into a tailspin fuelling inflation, discouraging growth and investment and ultimately putting pressure on balance of payment position and the exchange rate.