Revenue target still ambitious: PIDE

* Report says revenue collection is behind target; low fiscal deficit comes on the back of re-emerging circular debt, less-than-budgeted public sector development expenditure

ISLAMABAD: The revenue target of Rs 2,475 billion envisaged in the budget, which has been revised downwards to Rs 2,345 billion, is still ambitious.
The sustainability of improvement observed in the fiscal deficit is questionable, as the improvement has partially been achieved at the back of increase in circular debt and less-than-budgeted development expenditure, says the Pakistan Institute of Development Economics (PIDE) in its ‘Economy Watch’ report released on Wednesday.
The panic that prevailed in the forex market and on external account for months has given way to ‘comfort’; inflation has receded, fiscal deficit is even lower than envisaged, perceived business confidence has shored up and large scale manufacturing coupled with credit to private sector has picked up too, it said. 
The revenue collection is somewhat behind target and the low fiscal deficit comes on the back of re-emerging circular debt and less-than-budgeted public sector development expenditure.
The management of the forex market and the recent foreign currency inflows from various sources have fully offset the exchange rate depreciation observed in the initial months of this government. The Economy Watch states that with the increase in foreign reserves, the ability of the State Bank of Pakistan (SBP) to intervene in the forex market has increased. “This will help keep the speculators at bay for the moment.”
The document goes on to say that the volatility observed in the forex market speaks of the need to keep a stronger watch and devise rules for greater transparency in the forex market transaction. The report suggests that making public the amount of foreign currency bought and sold on a particular day would give the stakeholders an idea about demand and supply in the market and also about the sudden spikes, if any. The report argues that this will help curb speculation in the forex market.
It said that credit to the private sector had picked up during July-March, though a slight decline in the extension of credit to the private sector had been observed in January and February 2014.Credit to the textile sector has not increased significantly after the GSP Plus status became effective from January 2014, though some increase was observed in December 2013, it said.
The report said that though the stock market had performed well during the last nine months, various factors make it difficult to rely on the KSE index to predict the long-term trend of the country’s economy. “These factors include under-representation of major sector, like agriculture and services in the stock market, tilt of the index towards large firms, small capitalisation value and volatility of the stock market relative to other stock markets.
The document argues that branchless banking could help increase the extremely low level of financial inclusion in the country. “With mobile phones being increasingly used to transfer money from one place to another, now the banks through their agents can visit the potential customers to accept small deposits and make small loans.”
The Economy Watch states that the wheat support price scheme had outlived its utility. Referring to the relevant studies, the document argues for replacement of the wheat support price with subsidies on input and targeted cash transfers in the short run and gradual liberalisation in the long run.

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