The consolidated outlays of federal and provincial budgets have reportedly been revised downward to Rs 3.751 trillion from Rs 3.8 trillion originally proposed by the government of Pakistan and rejected by the International Monetary Fund (IMF).
The earlier figure, proposed by the government, envisaged a deficit of 4.5 percent (Rs 912 million in total terms), which was rejected by the Fund, and the government was urged to contain the deficit at 4 percent for fiscal year 2011-12 (Rs 810.64 billion). Sources said that the economic managers would have to struggle to plug the Rs 102.66 billion additional gap in the fiscal deficit subsequent to the IMF refusal to accept the originally proposed 4.5 percent deficit.
This would necessitate a range of policy decisions including slashing the Rs 225 billion estimated on account of subsidies and raising revenue. However, an official told Business Recorder that the prospect of generating more than Rs 1952 billion revenue was unlikely, given the track record of Federal Board of Revenue (FBR).
The IMF has been quoted as saying that Rs 807 billion borrowing from the State Bank of Pakistan and commercial banks to plug the deficit would not only result in crowding out private sector credit with a resultant negative impact on employment opportunities but would also make it extremely difficult for the government to bring down inflation to 12 percent.
The Finance Ministry in its documents has also acknowledged that the large public sector deficit has a negative impact on investment and growth, especially when public sector capital investments shrink. This is because the financing of the deficit absorbs funds in the private and banking sectors which would otherwise be used for investment in the economy. The financing of the deficit also tends to require sustained high interest rates, which undermine the profitability of investment.
The federal government''s original outlay for the next fiscal year was estimated at Rs 2549 billion, which is now being revised to Rs 2447 billion, after refusal by the IMF to support 4.5 percent fiscal deficit. The provincial budgets have been estimated at Rs 1305 billion with Rs 124 billion budget surplus to reduce 0.6 percent consolidated budget deficit for the next fiscal year.
Total revenue collection has been projected at 2.737 billion for the next fiscal year, with Rs1952 collection by the Federal Board of Revenue (FBR) and 637 billion on account of non-tax revenue collection.
Of total revenue collection, Rs1279 billion under National Finance Commission Award (NFC) and Rs 55 billion development grants would be transferred to the provinces in 2011-12. This would include Rs 1019 billion as net divisible pool, Rs 187 straight transfer, Rs 18 billion 1percent to Khyber Pakhtunkhawa for war on terror grant and Rs 55 billion grant to provinces.
The net revenue of Rs 1543 billion has been estimated to be available to the federal government for the next fiscal year.
Official documents show that defence expenditure is projected at Rs 495 billion from Rs 442 billion in 2010-11, reflecting an increase of 12 percent. Given the rate of inflation of 14.1 percent in the current fiscal year, defence expenditure would be slightly lower than last year in real terms. In addition, Rs 216 billion has also been allocated in the budget for other security-related expenditures.
The overall allocation for subsidies, after a slash of 20 percent, has been estimated at Rs 225 billion against the budgetary allocation of Rs 283 billion for the outgoing fiscal year. Of this, Rs 148 billion was allocated for power subsidy, Rs 52 billion for food, oil (zero) and fertiliser Rs 26 billion against Rs 5 billion earmarked in 2010-11.
The federal government has estimated Rs 118 billion for pensions in the next fiscal year 2011-12, against Rs 107 billion for the current fiscal year, indicating an increase of 10 percent. An official said that a rise in pensions may well be accompanied by a rise in salaries of government employees, despite fiscal constraint. However, other government sources say that the government is unlikely to raise salaries, given that they were raised by 50 percent in 2010-11.
Total indicative ceilings for the federal ministries are expected to be Rs 200 billion in 2011-12, against Rs 180 billion in 2010-11, indicating 11 percent increase in expenditure.
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