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Dismal fiscal indicators

DATA released by the Ministry of Finance and Economic Affairs on Tuesday presents a dismal picture of the fiscal indicators, highlighting the fact that the strategy to address the challenge is not paying the dividend. The figures indicate that the country’s fiscal deficit in first three quarters (July-March) of the current fiscal year peaked to five per cent of GDP as expenditures broke past records and revenue performance was the lowest almost in a decade. The revenue collection stood at Rs 3.583 trillion in first nine months while the total expenditure ballooned to Rs 5.5 trillion showing fiscal deficit of Rs 1.922 trillion.
The situation is really worrisome as the Government has taken a number of measures in a bid to check the growing deficit. These include a sharp increase in taxes and duties; withdrawal of some exemptions; tightening of expenditure; denial of supplementary grants to ministries, divisions and departments; cut in developmental expenditure and administrative and management level changes at FBR and the State Bank of Pakistan. The data emphasizes the need for review of the existing strategy to address the challenge as repeated increase in rates of taxes and duties; hike in gas and electricity tariff, unending increase in prices of POL products, free for all devaluation of rupee on the pretext of increasing exports and reduction in developmental expenditure are having their own toll on the economy. If the current policies are further pursued in the coming budget, there are apprehensions that the economy would come under further stress besides adding to the vows of the common man. It is to be noted that debt and defence spending consumed Rs 2.24 trillion or 61.1% of the total federal expenditures while development spending stood at just Rs 302 billion or 8.2% of the federal spending. The situation is unlikely to change as the country cannot afford to reduce defence expenditure in view of the ongoing war on terror and regional security environment. Similarly, debt repayments would increase significantly because of record loan obtained by the Government during the last nine months and sharp devaluation of the rupee. And in case the Government opted to strike at the developmental expenditure further, it could slow down economic activities and squeeze the job market further. Increase in revenue is the only option but here again effort should be to tax the untaxed and those who have known income but are not contributing proportionately to the national exchequer.