Fiscal stabilisation is the key feature emerging from the statistics presented in the federal budget documents 2014-15. According to the budget documents, revised estimates for 2013-14 indicate that budget deficit was much lower compared to what was envisaged at the time of budget making. At the time of budget making, authorities estimated the budget deficit of 6.3 percent of GDP, while as per revised estimates overall budget deficit would likely to be 5.8 percent of GDP in 2013-14. Even in absolute terms, it declined from Rs 1.65 trillion to Rs 1.45 trillion as per official estimates. Pakistan's authorities believe that this positive deviation is the result of their austerity efforts; they claimed that their policies act as a stimulus to economy and helped to achieve much needed fiscal stabilisation. The question is whether this deviation is an outcome of sound macroeconomic policies or flawed computation made during the budget making exercise.
Conceptually, budget deficit is simply a difference between total revenues and total expenditure. The former includes both tax and non-tax revenues and the latter includes both current and development expenditures. In reality, the computation of the budget deficit is slightly more complicated due to allocations made to repayment of foreign debt, different tiers of governments and lending to autonomous bodies.
Table 1 highlights that the net revenue receipts - sum of both tax and non-tax revenues after excluding the provincial share in revenues - surpasses the budget estimates for 2013-14 by 13.9 percent as per revised estimates. Given the sluggish economic activities and ongoing security challenges and threats, apparently, this increase is commendable. However, scrutiny of various components of net revenue receipts indicates that it is not due to taxation efforts of federal government. In fact, once again federal government has failed to achieve its tax target for 2013-14 even after including Rs 88 billion from Gas Infrastructure Development Cess (GIDC). The increase in net revenue receipts is derived by tremendous growth in non-tax revenues. Foreign grants of more than Rs 204 billion (including grant from a friendly country) is the largest contributor to this growth. Other two major contributors are state bank profit and other profits. While, former revised upward to Rs 260 billion against the budget estimate of Rs 200 billion, the latter shows Rs 67.6 billion as revised estimate from zero budget estimate. Given that government retired domestic debt including the loan from state bank in 2013-14, this huge growth in the SBP profit is an overestimation.
On expenditure side, net current expenditure, after excluding repayment of foreign debt, reveals an increase of more than 4 percent compared to budget estimates set for the 2013-14. An analysis of the trend in current expenditures and detailed screening of federal budget documents highlight that this may further augment if government tries to retire circular debt similar to last year. In contrast to current expenditure, federal PSDP shows a decline of 21 percent compared to budget estimates. However, development expenditures outside PSDP show phenomenal growth.
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TABLE 1: COMPUTATION OF OVERALL BUDGET DEFICIT
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(In Billion Rs)
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Heads 2010-11 2011-12
BE RE BE
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Net Revenue Receipts 1,917.7 2,183.8 2,225.4
Plus Net Lending to Provinces and others 27.3 -50.4 32.1
Minus Current Expenditures 3,196.1 3,198.6 3,463.2
Plus Repayment of Foreign Loans 366.8 263.6 333.2
Minus Federal Development Expenditures 789.4 858.7 838.5
Federal Budget Surplus(+)/Deficit (-)A -1,673.7 -1,660.3 -1,711.0
Provincial Budget Surplus/Deficit
Punjab -30.0 34.7 0.0
Sindh -16.6 -10.3 -3.0
Khyber Pakhtunkhwa 14.9 13.4 11.7
Balochistan 8.5 13.8 -1.8
Provincial Budget Surplus(+)/Deficit(-)B -23.2 51.6 7.0
OVERALL Budget Surplus(+)/Deficit (-) (A+B) -1,696.9 -1,608.7 -1,704.0
GDP (MP) 26,001 25,402 29,078
BUDGET DEFICIT (as %age of GDP) -6.5 -6.3 -5.9
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Source: Author's Estimates based on Federal Budget in Brief 2014-15, Annual Budget Statement (Province-Wise) 2014-15
Note: BE implies Budget Estimates and RE implies Revised Estimates
Despite the reservations expressed above and assuming the statistics presented in the federal budget documents are correct, what would be the federal and overall budget deficit (aggregate of federal and provincial budget deficit/surplus)?
The computation of the federal budget deficit simply requires subtraction of total expenditures (sum of net current expenditures and federal development expenditures) from total revenues (sum of net revenue receipts and net lending to others). The result shows a budget deficit of Rs 1.7 trillion and Rs 1.6 trillion as per budget and revised estimates of 2013-14 respectively. However, neither of them is less than 6 percent of GDP. For 2014-15, it is Rs 1.7 trillion, which is roughly 5.9 percent of the GDP.
In order to lower the overall budget deficit, the federal budget documents show provincial surpluses of Rs 183 billion in 2013-14 and Rs 289 billion in 2014-15. As a result, overall budget deficit in 2013 -14 declines to Rs 1.48 trillion from Rs 1.67 trillion, which is exactly 5.8 percent of the projected GDP.
To check the consistency of provincial surplus, province-wise and aggregate budget surpluses/deficits are computed by using provincial budget documents. Surprisingly, the result indicates that Sindh has a deficit of more than Rs 10 billion instead of surplus. Among the rest of three provinces, Punjab has a surplus of Rs 35 billion, Khyber Pakhtunkhwa of Rs 13 billion and Balochistan has budget surplus of roughly Rs 14 billion. The sum of these budgetary balances result in a net surplus of Rs 51.6 billion instead a surplus of Rs 183 billion for 2013-14. The situation for 2014-15 depicts a gloomy picture since the aggregate projected provincial budget surplus is only Rs 7 billion rather a surplus of Rs 289 billion.
Aggregation of provincial and federal budget deficit and surpluses gives a relatively higher overall budget deficit of Rs 1.6 trillion in 2013-14 and Rs 1.7 trillion in 2014-15, which is 6.3 and 5.9 percent of the projected GDP. After taking into account the, monetary impact of overestimation in revenues and underestimation in current expenditures of the federal government, this overall budget deficit is likely to reach 7 percent of GDP in 2013-14 and cross 6 percent of GDP in 2014-15.
Based on these estimates, it can be inferred that the large deviation in budgeted and revised estimates of budget deficit pertains to systematic errors, which may have been made intentionally to show a lower deficit within the prescribed limits of IMF. If such budgeting practices continue then it would further erode the credibility of the government among people, donor agencies and in the eyes of IMF. Moreover, it creates uncertainties in federal and provincial fiscal planning, which is a potential harbinger of negative implication for development.
(The writer is the Principal Economist at the Social Policy and Development Centre)
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