The government is likely to achieve the fiscal deficit target of 3.2 percent for the current fiscal year as the revenue, including tax collection, has maintained the rising trend as economy expanded at the fastest pace in 20 years. The Ministry of Finance has released the fiscal figures for July-March FY05, which show the budget deficit at Rs 131 billion, or 2.1 percent of GDP. The deficit is in line with the government''s full-year FY05 target of Rs 200 billion, or 3.2 percent of GDP.
The government''s performance has been quite good, despite general opinion to the contrary, where utilisation of PSDP budget has been well and truly in line with Rs 202 billion set for the whole year.
Total revenues for July-March FY05 stood at Rs 635 billion, or 10.3 percent of GDP, which translated into a growth of 14.4 percent, versus July-March FY04. Of this revenue collection, Central Board of Revenue contributed Rs 403 billion as tax collection, which shows a growth of 13.5 percent versus collection of Rs 355 billion of last year. Contribution of surcharges, ie gas development surcharge and petroleum development levy was Rs 21.7 billion (Rs 12.5 billion as GDS and Rs 9.2 billion as PDL). GDS remained intact as compared to July-March FY04, while PDL is down by around Rs 27.5 billion (75 percent) as compared to July-March FY04. The provision of subsidy to petroleum consumers has resulted in this massive decline.
Non-tax revenues jumped to Rs 180 billion for July-March FY05 versus Rs 131 billion for July-March FY04. This increase of Rs 49 billion has been contributed mainly by an increase of Rs12.5 billion in dividend income, an increase of Rs 20 billion in revenues from US forces posted in Pakistan, and an increase of Rs 17 billion in profit of Pak Telecom Authority.
Total expenditure for July-March FY05 rose to Rs 766 billion, or 12.4 percent of GDP, which represents growth of 22.1 percent as compared to July-March FY04. Of this, total current expenditure rose to Rs 648 billion, showing an increase of Rs 112 billion. The government has also recorded an unidentified expenditure of Rs 23 billion for July-March FY05, which may be clarified when full-year figures are released.
The most encouraging part of the expenditures remains the high level of development expenditure (PSDP). This has risen to Rs 138 billion, or 2.2 percent of GDP, in July-March FY05 as against a level of only Rs 85 billion incurred during July-March FY04. Rs 138 billion on account of PSDP represents 68 percent of total budgeted PSDP of Rs 202 billion for the full year. Thus, there is a good chance that this time the government might achieve the full-year PSDP target.
In the past, governments had been cutting down the PSDP to control budget deficits. However, this time, with ample fiscal space and absence of donor agencies'' directions, the government could very well stay within Rs 200 billion (3.2 percent of GDP), even with complete utilization of PSDP.
For FY06 also, analysts are of the view that the government might set budget deficit target of 3.2 percent of GDP, which would seem easy for the government to achieve. Khalid Iqbal Siddiqui, head of research at Investcapital Securities, said that according to the figures released by CBR, total tax collection for 11 months (Jul-May) of FY05 stood at Rs 494 billion. This means that CBR has to collect another Rs 86 billion in June to reach its target of Rs 580 billion.
For FY06, however, the government is planning to set an ambitious target of Rs 700 billion. The government is likely to take significant measures in order to broaden the tax base by bringing in the informal sector and real estate business into the tax net so that the said target can be achieved.
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