ZAHEER ABBASI

ISLAMABAD: Finance Ministry’s penchant for overstating GDP growth rate may have negative implications in terms of achieving some budgetary projections as well as compromise targets agreed with the International Monetary Fund (IMF) under the $6.64 billion extended Fund Facility.

An official on condition of anonymity said that an inflated GDP helps the government show higher growth with positive political implications, but at the same time it makes it difficult to achieve projected increase in investment and saving as a percentage of GDP.

The Federal Board of Revenue (FBR) tax collection target for the current fiscal year is being viewed as formidable in spite of the projected GDP increase to 29 trillion rupees – from 25.4 trillion rupees in the revised estimates of last year. The FBR tax revenue was estimated at 9.5 percent of GDP or Rs 2470 billion for 2013-14 based on the projected GDP of Rs 26001 billion. As GDP was revised downward to Rs 25402 billion, the FBR tax revenue as a percentage of the revised GDP was slashed to 9 percent for the last fiscal year.

Finance Ministry has projected macroeconomic indicators for the current fiscal year, revenue collection, expenditure as well as fiscal balance and total debt of the country, on the assumption of a Rs 29,078 billion GDP.

Analysts say that overstating GDP would benefit in terms of fiscal deficit but would make it impossible to achieve revenue collection and subsidies target as total amount would increase.

The finance ministry has committed to the IMF that the government would pass on the notified tariff in the current fiscal year to reduce the subsidy to 0.5 percent of GDP – Rs 144 billion if calculated on the basis of the size of GDP forecast for the current fiscal year.