KARACHI: Borrowings for budgetary support went up 50 per cent in the first 10 months of the fiscal year, making it difficult for the government to achieve its deficit target for 2016-17.One of the challenges for the government is to provide people, trade and industry with tax relief in the upcoming budget as the general election will take place next year. Any hike in taxes or duties can cause a backlash for the government.
The fiscal gap target for 2016-17 is 4.1pc of GDP. But the poor revenue collection and higher spending so far in the fiscal year has widened the gap, leaving no option for the government other than borrowing for budgetary support.The State Bank of Pakistan (SBP) reported on Friday that borrowings for budgetary support for July-April rose to Rs805 billion from Rs536bn a year ago.The government borrowed Rs967.7bn from the SBP and Rs50bn from commercial banks during the 10 months. However, the provinces retired debts amounting to Rs100bn in the same period.Representatives of trade and industry said the government is collecting advance taxes to reduce the fiscal gap, which may not work because the size of the deficit is a lot bigger than the target.Despite tremendous public pressure on the issue of power cuts, the government has not resolved the matter of Rs400-450bn circular debt. The fiscal gap will widen even further if the government releases the amount to clear circular debt.About Rs300bn is also stuck with the government as sales tax refunds. Analysts believe there is no chance the government will release the money before the next budget.The half-yearly figure for the fiscal deficit as a percentage of GDP was disappointingly high. It was 2.4pc against 1.7pc of last year.The deficit usually increases at a faster pace in the second half of the fiscal year, the trend from last five years shows. The second half of the fiscal year typically consists of 60pc of the overall deficit.The government received the Coalition Support Fund (CSF) from the United States amounting to $350 million in March, which helped the country reduce its non-tax revenue collection. The government faced a shortfall in non-tax revenues, which have now received a boost by CSF inflows.
The Ministry of Finance argues that the reduced profit of the SBP is one of the reasons for the low revenue collection. The SBP has kept a low benchmark interest rate to support the private sector and increase the growth rate. The low interest rate is likely to reduce the SBP profit further by the end of the fiscal year.
