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Rising budget deficit

Rising budget deficit

Media reports suggest the budget deficit in dollar term has reached $7.5 billion during the first five months of the current fiscal year, more than half of the annual target, belying the claims that the country has achieved macroeconomic stability. With increase in the budget deficit, the gap between income and expenditure has widened to 2.3 percent of gross domestic product during the period in review. On another note, the provinces have shown $1.3 billion as cash surplus during the first five months of the year. Economists hold domestic and foreign debt servicing responsible for increase in the budget deficit, but the same situation appeared last year when deficit reached as high as $110 billion. The budget deficit of the first five months shows the government will miss target to keep it at 4.1 percent of the gross domestic product during the entire year. Though the prime minister has declared that the amount of US coalition support fund is insignificant, but to some extent it could help the government streamline fiscal matters. However, the main reason of the losses is uncontrolled government expenditures, mismanagement and lack of will and capacity to mend the financial affairs.

The government authorities have already completed a session of negotiations with the International Monetary Fund and economists fear the government may have a plan to seek another bailout package from the ‘monster’. The Finance Ministry hopes the budget deficit would not cross 5 percent of the GDP, but no procedure has so far been adopted to contain the losses. In the absence of any practical step by the policymakers, it is feared the annual budget deficit could exceed the last year’s level of $110 billion when the government target to contain the losses was $7.2 billion or 2.4 percent of the GDP.

Until and unless the government pays attention to the industrial and agriculture sectors, the financial position would not improve by taking loans and grants, especially in a hostile environment when the United States is threatening Pakistan of the financial consequences and India is challenging the nerves of the nation on the line of control. The challenges faced by the economy are big, and only a proactive approach is required to handle the situation. The government will have to improve business environment by giving tax holidays to local and foreign investors and provide infrastructure for the establishment of new industries in the country. This is the only to strengthen economy as well as defence.