Revenue shortfall

The projected shortfall from the budgeted non-tax revenue must be an additional source of serious concern for the Dar-led Finance Ministry due to two prevalent factors. First and foremost, the United States recently released 350 million dollars under the Coalition Support Fund (CSF), as per a press release by the State Bank of Pakistan - equivalent to around 36.5 billion rupees at the rupee-dollar parity of 104.5. Given that the budget documents for the current year projected CSF inflows of 170.7 billion rupees this release, if not backed by additional disbursements by June this year, would imply a shortfall of 134 billion rupees. The possibility of additional disbursements under this head would be revealed in the Trump administration's first budget that, as per US Embassy sources, has not been firmed up yet; however, there is a concern that CSF may dry up completely given the different focus of the incumbent US administration relative to its predecessor's.
Secondly, Ishaq Dar had quite inexplicably projected 75 billion rupees for sale of 3G licence in the budget for the current year - an amount that Pakistan Telecommunication Authority (PTA) officials claim was determined without consultations with them. The maximum that can be realistically generated from this auction, as per PTA officials, is 300 million dollars (around 31 billion rupees) or a shortfall of over 40 billion rupees is expected under this head. The Advisory Committee for the auction fearing poor response from the market undertook a comparative study of local and regional markets and presented the results to the IT Minister Anusha Rehman. While common sense may dictate a postponement of this auction yet there are credible reports that the Finance Minister is pressurising PTA to go for the auction by May this year - no doubt to minimise the budget deficit as much as possible. And his influence with the Prime Minister, also Minister in Charge of IT, is expected to result in the issuance of a directive to auction the 3G spectrum by May.
Thus the shortfall under non-tax revenue from these two heads is estimated at 174 billion rupees. Federal Board of Revenue (FBR) collection shortfall from what was budgeted for the first eight months of the current fiscal year has been estimated at 161 billion rupees - an amount that may increase during the last four months of the current fiscal year though reliance on collecting advance tax as well as delays in the payment of refunds would no doubt play the usual not quite kosher role in containing the deficit.
Thus a total minimal revenue shortfall of 335 billion rupees is expected in the current year. However, given that next year is election year and Pakistan no longer on a strictly monitored International Monetary Fund programme, it is extremely doubtful if the government would announce a mini-budget to meet the shortfall or indeed curtail expenditure - current or development. The preferred option as reflected in the Sharif administration's nearly four-year policy decisions would be to incur more loans from the commercial sector abroad which are procured for the short-term at very high rates of return that accounted for outflows in the second quarter of the current fiscal year, and/or auction for Eurobonds/sukuk at rates well above the market - minimum 6.5 percent and a maximum rate of 8.5 percent for 10-year Eurobonds. The Finance Minister refers to this borrowing as equity, however, in economic terms it is debt equity.
This newspaper has been urging the government to curtail its short-term borrowing from abroad and desist from understating the annual mark-up and repayment of principal on loans incurred from abroad in budget documents by intervening in the exchange market to keep the rupee overvalued as that has dampened exports. And to refrain from displaying unrealistic optimism year after year with respect to setting budgetary revenue targets - both from collections by FBR and non-tax revenue as that disables the government from formulating appropriate policies. Unfortunately, our advice has fallen on deaf ears and there is a very real danger that our deficit in the election year may rise to over 8 percent of GDP - comparable to what was inherited by the Sharif administration.