WEB DESK: The fiscal deficit target was missed by 0.3 percent of Gross Domestic Product (GDP) according to the consolidated budgetary operation document released by the Ministry of Finance.

Thus the 4.3 percent fiscal deficit claimed by the Federal Finance Minister Ishaq Dar in his 2016 budget speech for 2015-16 has been revised upward to 4.6 percent. With the GDP growth rate of 4.7 percent, claimed by Dar and supported by the Economic Survey 2015-16, the projected GDP for the year was 27,905,091 million rupees calculated at current prices, or in other words, the deficit target was missed by 83,715 million rupees. This, so claimed the document, was achieved by a provincial surplus of 141.6 billion rupees and statistical discrepancy of 212 billion rupees.

A few disturbing observations are in order. First and foremost, serious concerns persist about the credibility of the GDP growth rate given a blatant lack of rationalisation of data tabulated and released by government agencies as well as by credible associations like textile and cement associations.

Periodic efforts by independent economists as well as the media to discuss data issues with Pakistan Bureau of Statistics (PBS) have been unsuccessful for the past three years. Secondly, the statistical discrepancy has been revised upward from a negative 145.8 billion rupees as noted in the Economic Survey 2015-16 to 212 billion rupees - a rise of 245 percent from the statistical discrepancy in 2014-15 of 61.4 billion rupees and a rise of 45 percent from what was projected in the Economic Survey in March this year.

Thirdly, there is sufficient evidence to suggest that the government has overstated its revenue collection through (i) not releasing refunds amounting to 200 billion rupees according to industry sources though the Prime Minister did recently announce the release of 21 billion rupees in refunds (with the cheques still not received by snail mail as promised); (ii) advance tax collections; and (iii) placing tax dedicated revenue like the Gas Infrastructure Development Cess and Gas Infrastructure Development Surcharge totalling 180 billion rupees under other taxes. And finally, the government relied on provincial surplus, to the tune of 141.6 billion rupees, to generate the 4.6 percent deficit. The budgeted provincial surplus was 297 billion rupees for 2015-16 and hence the actual surplus was 52 percent less than budgeted.

What is, however, raising alarm bells amongst economists is one element that the government would not be able to rely on in the current fiscal year and another in the election year 2017-18. In the current year all the four provinces, including Punjab have already informed the federal government that they would not be able to generate any surplus to enable the federal government to meet its deficit target.

Thus it is highly unlikely that the budgeted 339 billion rupee provincial surplus would be available to enable the Dar-led Finance Ministry to meet the budgeted 1,615 billion rupee deficit. And, in an election year the federal government would have to begin repayment of the 12.2 billion dollars rescheduled Paris Club debt, over and above the current repayments, which in turn would have further serious consequences on the balance of payment (BoP) position.

The options for the government at that time would be to either procure more loans from the multilaterals, a decision that maybe deferred till after the elections, or to borrow bilaterally which is unlikely unless we are on another International Monetary Fund programme that would give the required comfort level to lenders that the country remains on the path of reform, or borrow domestically, which would crowd out private sector borrowing that may not be politically feasible. The only options left would be to procure short-term expensive loans from the commercial sector abroad - a reliance that Ishaq Dar has increased since he took over the portfolio - and/or issue more Eurobonds/sukuk at rates well above the prevalent international rates as happened in the past.

To conclude, there are serious concerns about the efficacy of the economic policies of the government and Dar has typically dealt with any criticism by rejecting and attacking his detractors on political grounds. This newspaper would urge the Finance Minister to heed these concerns, including those associated with the data compilation by PBS on which the Finance Ministry bases its economic strategy.

Source: Business Recorder