Govt struggles to finance deficit

The government has made a plan to fill the projected fiscal deficit of four per cent of GDP (Rs856 billion) in FY-2011-12 from foreign investments that include $500 million to be collected through GDR of OGDCL and $800 million pending payment of the PTCL shares from Etisalat.However, the Finance Ministry officials said the government had been finding it difficult to fill the projected fiscal deficit and made unrealistic estimates about foreign inflows for the next fiscal.It is pertinent to mention here that for FY-2010-11, the government had projected foreign inflows at Rs950 billion, but from July 2010 to April 2011, the government had received foreign inflow of Rs83 billion only.The officials said following the apprehension from the International Monetary Fund (IMF) regarding the government’s failure in enforcing Reformed General Sales Tax (RGST) and the Fund’s reluctance about restoration of suspended loan programme. For FY-2011-12, the government is anticipating foreign inflows of about Rs46 billion only as both the World Bank and the ADB are also reluctant to release funding until restoration of the IMF loan programme.Moreover, for the year 2011-12, the government plans to retire $1.47 billion of IMF’s budgetary support, which is expected to lower external financing, resulting in considerable pressure on the domestic debt market.For this, the government intends to formulate its medium-term debt policy with three important pillars: (1) reduction of budget (total deficit without interest) to around ‘negative’ 1 per cent over the medium-term, (2) use of debt instruments that are low interest-yielding, including more reliance on national savings instruments, and (3) reduction of SBP borrowing to zero.

The Finance Ministry argued that due to the commencement of repayment of IMF Stand-by-Arrangement as per schedule, public debt is expected to narrow down considerably. However, repayment of IMF loans would result in reduction of gross foreign reserves. The total debt-to-GDP ratio isexpected to fall below 50 per cent of the GDP. Real growth of revenue has been projected higher than the real growth of debt that would ensure reduction in total public debt over revenue in the medium term.The sources said the total public debt rose from Rs 4.4 trillion in 2005-06 to Rs 9.1 trillion in 2009-10. Last year, public debt increased to around more than 60 per cent of GDP. “This is a dangerous trend for the government, especially when tax revenue to GDP ratio is below 10 per cent,” the sources added.Pakistan ranks high (three) in terms of total public debt to total revenue in emerging markets. Pakistan’s ratio last year was around 400 per cent while the average in emerging markets is around 150 per cent. High fiscal deficit has led to increased interest repayments. This year, total interest liability is Rs 727 billion, which is 58.5 per cent of new revenue available to the federal government. – MSN