Pakistan’s fiscal deficit for the first half of the ongoing fiscal year has escalated to 2.4 percent of Gross Domestic Product – the highest in four years and only 0.2 percent lower than the much denigrated 2012-13 figure by the incumbent Finance Minister Ishaq Dar – as per details of the fiscal operations released by the Ministry of Finance. The Sharif administration, soon after it came to power in June 2013, began to negotiate an International Monetary Fund (IMF) loan which is strictly monitored and any attempt to deviate from agreed policy reforms, with a time-bound quantitative deficit containment, a major programme condition, leading to its suspension – a factor that accounts for other multilaterals as well as bilaterals disbursing funds, loans or grants, for budget support during the programme period. Once the programme is over, the Fund’s leverage naturally declines and the debtor government, in several instances, abandon their reform programme.

The Sharif administration procured a 6.64 billion dollar Extended Fund Facility (EFF) which was approved by the IMF Board on 4th September 2013 – a 36-month programme that ended in September 2016. This newspaper had projected the rise in the growth rate of the fiscal deficit subsequent to the end of the IMF programme on two counts: first, the cessation of the EFF would, it was argued, automatically lead to a marked decline in budget support by multilaterals/bilaterals because their comfort level with respect to the country staying the politically challenging reform course would be compromised without the IMF monitoring. In this context, it is relevant to note that 324.6 billion rupee programme loans were disbursed in 2015-16 while less than half – only 133.7 billion rupees – programme loans are budgeted for 2016-17, an amount which includes the last tranche release under the EFF. And second, with the approaching general elections scheduled for next year Business Recorder projected higher spending by the government for political considerations and, most relevantly, at the cost of economic considerations.

The decline from the budgeted revenue to fund the rise in expenditure has not been sufficient to contain the fiscal deficit. While all finance ministers, and Ishaq Dar is no exception, overestimate the budgeted revenue generation under all the heads yet the shortfall during the first half of the current year is of such a great magnitude that it has catapulted the deficit to the highest in four years. This is particularly disturbing as the government inherited a deficit that was unsustainable, and incidentally had added to the deficit of 2012-13 by borrowing 480 billion rupees from the commercial sector to retire the circular energy debt on the second-last day of the fiscal year – i.e., on 30th June. Be that as it may, the revenue shortfall (budgeted minus actual) was 5.9 percent during the first half of the current year in comparison to 6.5 percent in the comparable period last year.

What must be of further concern to the general public as well as the Opposition is that a steady rise of short-term commercial borrowing from external sources by the government in recent months to bridge the gap. At present, it is a little more than 2 billion dollars but reliance on this source of funds accounts for outflows instead of inflows during the first six months of the current year. Reliance on this extremely expensive source of borrowing was zero during the tenure of the PPP-led coalition government.

The incidence of statistical discrepancy has increased from 8.8 billion rupees July-December 2015-16 to 58 billion rupees – a rise of 559 percent. And lastly, all provinces, including Punjab, have indicated their inability to generate surpluses to achieve the federal budget’s target for provincial surplus of 339 billion rupees, as a prelude to the 2018 general elections.

To conclude, the 2.4 percent deficit during the first half of the current year when compared to the 2.6 percent deficit during the first half of 2012-13 (with an annual deficit of 8 percent) may lead to an unsustainable annual deficit of between 7.7 to 8 percent for the current year.