Budget deficit widens despite govt efforts otherwise

According to fiscal data released by the Ministry of finance, the budget deficit has only widened in the first quarter of current fiscal year despite the early efforts by PTI government to arrest the trend. The budget deficit in the first three months of the current fiscal year stands at Rs541.7 billion or 1.4% of GDP as against Rs441 billion or 1.2% of GDP in the first three months of the previous fiscal year.

Finance Minister Asad Umar had unveiled a mini-budget in September with claims that it would result in a steep fiscal adjustment of 2% of GDP and help bring down the overall deficit to 5.1%. To the contrary, there has been a more than Rs100 billion rise in budget deficit — and that too despite a cut in development budget, of Rs250 billion for the full fiscal, as well as Rs246.6 billion receipts in provincial surpluses. Proceeding at this pace, the deficit could go well beyond 5.6% of GDP at the end of ongoing fiscal year.

PTI government has repeatedly vowed to cut down fiscal deficit but as the figures indicate, it has failed in both policy direction, i.e. cutting down development expenditure and increasing the tax revenue. This also highlights the problematic areas of the fiscal framework given that the rise in tax revenue is not even half as much. The current expenditure in the July-September quarter stands at Rs1.48 trillion as compared to Rs1.24 trillion in the same period last year, marking an increase of about 20%.

The government has already done too much of fiscal tightening by way of cutting spending and imposing taxes, but the fiscal deficit crisis persists. This certainly does not bode well for ruling party who enjoys widespread popular support and cannot control the monetary policy too tightly as this will likely irk the citizenry. Undergoing austerity measures may seem good for optics but does not do much for structural economic reforms that are badly needed.