5.5 percent revised fiscal deficit target may be missed

The government is likely to miss 5.5 percent revised fiscal deficit target for the current fiscal year due to higher than budgeted subsidies to the power sector in the current fiscal year, it is learnt. Sources told Business Recorder that the budgeted Rs 50 billion in 2011-12 for inter-Disco tariff differential, exclusive of Rs 312 billion for one-off payment for power sector, was revised upward to Rs 100 billion.
However, an official of the Finance Ministry revealed that subsidies to power sector have reached Rs 148 billion against the revised target of Rs 100 billion for the current fiscal year and may rise further as there are still a few days to go. The budgeted revenue of Rs 118.739 billion on account of Coalition Support Fund (CSF) revised downward to Rs 45.749 billion for the current fiscal year has little prospect of being disbursed by June 30, 2012.
The Federal Board of Revenue's failure to achieve challenging revenue target of Rs 1952 billion for the current fiscal year would exacerbate the problem of fiscal deficit which, analysts believe, may touch 6 percent of the GDP, excluding 1.9 percent consolidation of arrears on electricity and commodities.
The budget deficit was projected at 4 percent of the GDP for the current fiscal year at the time of budget announcement by Finance Minister Dr Abdul Hafeez Sheikh but was subsequently revised upward to 4.7 percent and then to 5.5 percent in the Economic Survey.
The fiscal deficit including consolidation of electricity and commodities is expected to reach 8 percent for the current fiscal year of the GDP if expenditure on power sector continues at the prevalent rate and expected foreign inflows of Rs 45 billion are not disbursed before the end of current fiscal year.
An official of the Finance Ministry said that fiscal deficit of 5.5 percent has been estimated after an assurance by the FBR that revenue collection target of Rs 1952 billion would be achieved and any slippage on the part of FBR would compound the problem for the Finance Ministry. Increase in fiscal deficit would enhance government reliance on borrowing from the banking system and consequently further crowd out borrowing by the private sector leading to a paralysis of the sector that may have fuelled economic activity.