According to a Business Recorder exclusive, the fiscal deficit is likely to soar to 6.3 percent against the budgeted 4.3 percent. Pakistani administrations, past as well as the incumbent, have rarely, if ever, met the budgeted deficit target. However, a 2 percent gap is extremely significant; it therefore raises some serious questions. The International Monetary Fund (IMF) in a press release uploaded on its website on 6 March 2018 states that "following significant fiscal slippages last year, the fiscal deficit is expected at 5.5 percent of GDP this year, with risks towards a higher deficit ahead of upcoming general elections." Those risks, so maintain domestic economists, are significant and likely to raise the deficit by 0.8 percent of GDP than what was projected by the Fund. Additionally, domestic economists have consistently pointed out to "doctored" macroeconomic indicators during the PML-N government, a tendency that has not abated since Shahid Khaqan Abbasi was elected as the Prime Minister on August 1, 2017 - a fact which partly accounts for the budget document becoming irrelevant almost from the first day of the new fiscal year.
A higher than the budgeted deficit has been the norm in the country during an election year as budgeted expenditure characterised by political dimensions is allowed to escalate by more than in other years. However, a much higher than the budgeted deficit has also been evident during years when Pakistan is on an IMF programme as deficit reduction to sustainable levels is the Fund's standard normal time-bound structural benchmark while Islamabad's sustained failure to meet the target has necessitated understating the deficit.
The inordinate focus of the currently non-functional Finance Minister Ishaq Dar on balancing the books has, unfortunately, required even more than usual manipulation of data in general and budgetary data in particular. Budgeted revenue projections are overstated by more than during past administrations which required taking several policy decisions, including: (i) delaying refunds, with the obvious negative impact on the country's exports that has been evident for the past year and a half; (ii) increasing reliance on withholding taxes in the sales tax mode though crediting it in the income tax collections which has implied payment by filers on their income as well as on purchase of services taxed while the non-filers, paying a higher withholding rate, prefer not to file as they only pay the tax if they procure the services; and (iii) setting a revenue target that is simply unrealistic.
To add to the unrealism of the budgetary figures is an additional factor that became relevant post-2009 consensus agreement on the 7th National Finance Commission award (giving a higher share to the provinces from the divisible pool) as well as post-2010 18th Amendment (devolving many hitherto Centre-managed subjects, particularly those relating to social sectors and agriculture, to the provinces) but whose relevance to the economy rose substantially during the Dar-led Finance Ministry. The reason: Dar began to place a highly improbable reliance on this supposed source of funding to balance the budget books. This relates to the contribution of provincial surplus that was originally envisaged to be decided after consultations between the federal and provincial governments, but which, so accuse provinces where the PML-N is not in government, is being determined by the Centre without any input from them.
During the PPP-led coalition government, the provincial surplus was more realistic. In 2012-13 budget documents, the provincial surplus was budgeted at 80 billion rupees while 347 billion rupees has been projected in the budget documents of the current fiscal year, a highly ambitious target especially given that this is an election year. This implies a rise of 334 percent in just five years during which time the provinces have shown little improvement, if any, in raising reliance on their own taxes though the steady rise in revenue from sales tax on services, barring Balochistan, must be appreciated. Be that as it may, it is relevant to note that the Federal Board of Revenue (FBR) has yet to rationalize input/output tax with provincial revenue authorities/boards, an issue that erupted soon after the provinces decided to begin collecting sales tax on services themselves in 2013.
It is imperative for the government to focus on being realistic in the last budget during its third tenure; however, this is very doubtful as political considerations are even more likely to outweigh economic considerations as 2018 is an election year.