20000403

Budget deficit may

touch 4pc mark of

GDP for this fiscal

HARIS ZAMIR

KARACHI: The budget deficit during the current fiscal year is expected to touch the 4 percent mark of GDP, the upper limit set by International Monetary Fund owing to fall in revenue collection, meagre rise in remittances, government borrowing from local banks and the ballooning trade deficit.

According to a leading economist estimate, with the expected annual tax collection of Rs 330 billion, trade deficit around $1.3 billion to $1.5 billion and development expenditure of Rs 93 billion, the budget deficit comes to 3.92 percent of GDP, whereas the GDP estimate stands at Rs 3300 billion. A deficit of 3.92 percent is still within the IMF prescribed limit of 4 percent, but it leaves little room for the government during the next three months.

A leading analyst from the local brokerage said that government is making strenuous effort to contain the fiscal indicators within IMF prescribed limits to avail of the Balance of Payment support credit facilities.

An IMF mission is expected to hold talks with Pakistani officials this week. The government is likely to urge the donor agency to approve fresh lending to Pakistan stalled since July. IMF last year approved $1.56 billion for Pakistan but it only got nearly $350 million from the fund. A tranche of $280 million has been stalled and now the Enhanced Structural Adjustment Facility has been converted into Poverty Reduction and Growth Facility Fund (PRGP).

The government had fixed 3.3 percent as the budgetary deficit for the 1999-2000. But according to provisional estimate and the last eight months trend of key indicators the deficit would reach 4 percent mark by end June 30, 2000. Tax Collection for the period July 1999 to February 2000 stood at Rs 205 billion, exactly Rs 32 billion short of its eight-monthly target of Rs 237 billion. The actual collections remain at 86.5% of the target collection, which suggest a total collection of Rs 308 billion for the entire fiscal. However, analysts hope that it might reach around Rs 325 billion to Rs 330 billion, which would be Rs 31 billion or 9% behind the Rs 356 billion target.

The remittances from July 99 to February 2000 showed a small rise of 4.12 percent to $606 million from $582 million of the same period last year. Remittances for the last fiscal stood at $1055 million, however, the full year estimates for this year are likely to finish around the $1 billion mark. The main reasons for the stagnation are: inefficient service by banks, attractive open market rate, and reduced confidence level of overseas Pakistanis.

The direct impact of reduced remittances is on the Current Account and the Balance of Payment as well. The first eight-month available data of the estimates revealed that the current account deficit settled at 3.07% of GDP. Simultaneously, the Balance of Payment situation estimates put a figure of $3.1 billion, further aggravating the government problems. In the midst of all these negative figures the pressure on the government has increased to secure the required support from donor agencies in order to avoid another economic crisis. A longer-term view clearly suggests that unless the government improves its export performance and import rationalisation the problem is expected to recur, an analyst said.