ISLAMABAD: The government has revised upward the fiscal deficit projection for the current fiscal year to 4.4 percent, from 4 percent, as agreed in the budget with the International Monetary Fund (IMF), following economic performance of country during the first quarter of 2011-12. The fiscal deficit would go over 5 percent, in case of failure by the provinces to create Rs125 billion projected budget surplus, due to unforeseen expenditure on flood, dengue and likely decline in revenue collection.
Finance Secretary Dr Waqar Masood informed the Senate Standing Committee on Finance that from now on the fiscal deficit is estimated at 4.4 percent for the next period of current fiscal year, and is 1.1 percent for the first quarter of 2011-12. The Senate Standing Committee was skeptical about revenue based on assumptions of materialisation of projected exchangeable bonds, $800 million of PTCL and $2.5 billion on account of Coalition Support Fund (CSF). The Committee also doubted materialisation of Rs 75 billion estimated in the budget from sale of 3-G licences. Senator Ishaq Dar said that the government must avoid submitting inflated CSF bills to the US because this tendency was damaging the credibility of the country, and strongly take up the issue of genuine expenditure imbursement with the US, because this amount was spent from taxpayers' money.
Finance Secretary in a briefing to the Senate Standing Committee on Finance and Revenue on the economic strategy for the country after withdrawal from the IMF programme said that decision was taken to withdraw from the IMF program because of robust growth on external sector of the economy. He said that decision of withdrawal from the IMF program would not mean suspension of relations with the Fund, and its mission would be reaching Pakistan in November 2011 for article IV consultation. He said that Pakistan would request the IMF for another loan, if such a need arose.
He said that the government was feeling comfortable on external side and continued to perform relatively better in the first two months of the current fiscal year. He said that despite some visible pressure in September 2011, 5 percent increase in exports growth was achievable with figures for the first quarter showing 19 percent increase in exports and 23 percent in imports, compared to the same period of last year. The remittance stood at $3.3 billion during the first quarter of current fiscal compared to $2.4 billion for the same period of last year. However, he admitted that real foreign exchange reserves had dwindled from $ 14.8 billion in June 2011 to $13.24 billion on October 11, indicating a decrease of $1.4 billion.
Waqar said that $2.5 billion outstanding dues for coalition support fund were expected to materialise in the current fiscal year as nothing was disbursed after $700 million in December 2010. Moreover, he said, the option to access the capital market through launching of exchangeable bonds had been delayed for the time being, and efforts were afoot for clearance of PTCL $800 million as well as Rs75 billion through sale of 3-G licences to meet the budgetary needs.
Secretary Finance also expressed hope that Asian Development Bank (ADB) and World Bank (WB) $2 billion in the budget would be diverted for projects and talks were going on in this regard with both donors.
He said that the power sector was the biggest challenge for the economy, and the government strategy is to remove the causes of circular debt before arranging one-off payment to clear the circular debt. He said that negotiations in this regard are being held with the ADB and WB, and the government is optimist that they would provide required funds to clear the circular debt.
About total circular debt for the current fiscal year, he said that Rs 284 billion has been accumulated because of line losses and recovery issues and it has nothing to do with the tariff differential. According to him, about Rs 123 billion has not been collected from the private sector.
About last year's economic performance, he said that the government was not able to meet the 5.3 percent fiscal deficit agreed with the International Monetary Fund (IMF) to qualify for the second last tranche of $11.3 billion stalled Stand-By-Arrangement (SBA) program because of Rs 30 billion shortfall in revenue collection, non-materialisation of Rs 46 billion of Coalition Support Fund (CSF) as well as Rs30 billion increase in development expenditure due to non realisation of external commitments for development projects, and the fiscal deficit was close to 5.9 percent for 2010-12, excluding Rs 120 billion payment for tariff differential for the 2009-10. Moreover, withdrawal of development levy from petroleum products in January 2011 resulted in a shortfall of Rs 30 billion in revenue estimated on this account in the budget and consequently the government was not able to meet the fiscal deficit target agreed with the IMF for the last fiscal year and failed to revive the program.