SATURDAY JANUARY 22: How to contain high fiscal deficit? Finance Ministry mulls proposing two weekly holidays

ISLAMABAD: The Ministry of Finance is likely to propose two weekly holidays, and a massive cut in development expenditure, in an effort to contain the fiscal deficit due to rising expenditure and declining revenue, sources told Business Recorder. They said that the proposal for two weekly holidays was prepared by the Ministry of Finance and would be submitted to the Cabinet for approval after seeking consent of political leadership in the ongoing talks.
The government saved an amount of Rs 40 billion through implementing two weekly holidays last year. The Finance Ministry has asked the provinces to boost their revenue efforts as their revenue collection is 15 percent short of the target in the first half of the current fiscal year. Total revenue collection of the provinces stood at 35 percent against the target of 50 percent in the first half.
The only positive sign, according to sources, was that the provinces had contained their expenditure to 35 percent in the first half by halting releases for development programmes. An over 57 percent cut in federal Public Sector Development Program (PSDP) was proposed but the proposal was not approved by the Prime Minister and he sought a meeting with secretary finance and planning.
It was proposed to reduce the federal PSDP to Rs 120 billion with an additional foreign component of Rs 16 billion and Rs 10 billion for Earthquake Reconstruction and Rehabilitation Authority (ERRA). Sources said that PSDP releases for the first half stood at Rs 60 billion.
An official of finance ministry claimed that there was some relief provided on the fiscal side through clearance of some pending Coalition Support Fund (CSF) by US, increase in revenue as well as profit of State Bank of Pakistan in December, 2010. This helped reduce borrowing of State Bank of Pakistan (SBP) to Rs 120 billion ,from Rs 324 billion.
However, the situation on revenue side is very bleak as a shortfall of Rs 80 billion is expected in the estimated revenue target which would give a total collection of Rs 1580 billion for the current fiscal year, instead of Rs 1667 billion as targeted in the budget. The withdrawal of oil price increase has added to the burden on the fiscal side and the government has to explore other options to cover the Rs 30 billion revenue shortfall under this account which may go up as oil prices continue to surge in the international market.
Rupees 62 billion additional revenue was envisaged on account of RGST implementation, flood surcharge and increase in federal excise duty to two per cent - measures that are politically no longer implementable. The circular debt, it is feared, may soar to Rs 301 billion in the current fiscal year if things were not fixed soon in power sector.
In addition, an official of the Finance Ministry said, Pepco has requested the government to clear Rs 165 billion of its arrears; Pakistan International Airlines (PIA) has requested Rs 57 billion as bailout package, and Pakistan Railway has requested for Rs 27 billion bailout package. Finance Ministry sources further said that the revised budgetary framework will be finalised on the basis of the outcome of ongoing talks with the political leadership, but some measures are being proposed to the Prime Minister for immediate approval to contain the fiscal deficit.