Initial Rs 2.45 trillion outlay shows 6.9 percent budget deficit

The Finance Ministry has initially envisaged Rs 2,453 billion total outlay of the budget 2010-11 with Rs 1,711 billion tax revenue from the FBR and Rs 1,157 billion (6.9 percent of GDP) budget deficit, says an initial draft version of Budgetary Strategy Paper. This data is being reviewed for further discussions and to present to the parliament in last week of May.
The budget outlay for 2011-12 is estimated to be Rs 2,658 billion and for 2012-13 would be Rs 2,900 billion. Budget deficit for 2011-12 will be Rs 1,181 billion (6.4 percent of GDP) and 2012-13 will be Rs 1,243 billion (6.1 percent of GDP). This budget deficit is excluding grants. Target of the IMF is calculated with different pattern and that figure varies with this data of budget deficit. With grants, the deficit figure is reduced.
The BSP document reads as: "The federal government will continue the process of fiscal consolidation. The overall fiscal deficit for the government (Federal + Provinces) is estimated at 5.3 percent of GDP (at market prices) for 2010/11 reducing to 3.6 percent of GDP (at market prices) by 2012-13."
Defence spending are being upgraded from Rs 378 billion (2.5 percent of GDP for 2009-10) to Rs 442 billion (2.7 percent of GDP for 2010-11). This budget will grow to Rs 477 billion (2.6 percent of GDP in 2011-12) and Rs 500 billion (2.4 percent of GDP 2012-13).
Interest payments in debt servicing is at Rs 672 billion for 2010-11, Rs 717 billion for the year 2011-12 and Rs 774 billion for 2012-13. GDP growth rate was estimated lower by the time the document was being written and now the estimates are up and the new rate would be firmed up by end-May. Document envisaged 4 percent growth rate for next year, which the country is likely to cross this year and for next year the data will be revised.
Documents say that rigorous efforts have been put to increase the FBR revenue to GDP (at market prices) ratio from the current 9.3 percent to 12.1 percent by 2012-13. These efforts include revenue policy measures (eg introduction of VAT) and reform measures.
The tax to GDP ratio required is considerably less and is hampering public sector investment to spur growth. However, the government has agreed to introduce Value Added Tax from July 1, 2010 which is planned to result in an increase of tax revenue by around 2.4 percent of GDP over the medium-term.
The cost of running of the federal government will increase gradually. This excludes the effect of increase in pay/magnetisation of allowances, which may be recommended by the Pay and Pension Committee. However, austerity measures are being taken (including merging of ministries) to contain this expenditure.
The VAT system has a better growth potential in relation to GST because it generates extra revenue through systematic documentation of the economy. For the budget year 2010-11 and 2011-12 the estimated increase in tax revenue through the introduction of VAT is estimated at 0.8 percent of GDP (at market prices) per annum. For the budget year 2012-13 the estimated increase in tax revenue through the introduction of VAT is estimated at 0.6 percent of GDP (at market prices), says the document.