Fiscal Policy Statement 2013-14 released: ‘Structural problems continue to disturb fiscal balance’

*Report says prudent fiscal policy, strong implementation of principles essential for macroeconomic stability

ISLAMABAD: Fiscal Policy Statement 2013-14 released on Thursday noted with concern that underestimation of subsidies, interest payments and lower collection against the targeted tax revenue continued to put pressure on the fiscal balance during the last fiscal year.
Prudent fiscal policy together with strong implementation and accountability of principles is essential for macroeconomic stability, suggested the fiscal policy statement.
According to the findings of the statement, structural problems continued to put pressure on the fiscal balance, which has been the case for the last few years now. 
Fiscal deficit during FY 2012-13 was eight percent, including payment for the resolution of the circular debt accounting 1.4 percent of the GDP. The deviation from initial estimates was largely on account of three factors – underestimation of subsidies, underestimation of interest payments owing to increased domestic borrowings and lower collection against the targeted FBR tax revenue.  The fiscal deficit exceeded the target despite an inflow of Rs 180 billion under the CSF and Rs 53 billion surplus generated by the provinces. Pakistan’s economy experienced another challenging year, as the fiscal deficit was recorded at eight percent of the GDP against the budgeted target of 4.7 percent in FY 2012-13. Tax revenue collection remained 19 percent below the budget target and the expenditure surpassed the target by 22 percent, which led to the exacerbating fiscal deficit. 
The higher fiscal deficit was added to public debt and consumed a major chunk of revenue to service it. Financing mix of deficit is also an area of concern, as it is skewed towards domestic sources, particularly on bank borrowing owing to lower external receipts. It is crowding out the private sector and is affecting investment, economic growth and ultimately compromising revenue generating capacity of the economy. The economic vision is based on trade and investment, competitive advantage and market considerations, enhancing private sector involvement, limiting its role to only large-scale investment and limit itself within the broader limits imposed by the available resources, broadening the base of resource mobilisation for running the government.
According to the document, prudent a fiscal policy together with strong implementation and accountability of principles would help reduce inflation, strengthen economic growth, and mitigate risks of falling foreign reserves and debt burden. By placing a high priority on structural reform and revenue generation, and establishing a comprehensive framework for management of public sector enterprises, the government will be able to finance the envisaged expenditure while containing excessive borrowing and maintaining fiscal sustainability. 
Amongst the provinces, Punjab witnessed a fiscal surplus on the back of an improved tax collection with 84 percent growth to stand at Rs 77 billion. Punjab contributed 51 percent to the total provincial tax revenue. Its total expenditure of Rs 691 billion showed an increase of 15 percent in the fiscal year 2012-13. 
Sindh managed to increase its tax revenue by 13 percent through efficient tax collection measures. Sindh’s tax revenue of Rs 68 billion contributed around 45 percent to the total provincial tax revenue. 
Khyber Pakhtunkhwa (KP) collected tax of Rs 4 billion during 2012-13, which improved from Rs 3.7 billion, showing an increase of 12 percent. The province contributed a meagre share of three percent to the total provincial tax revenue. 

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