Budget 2013-14 Government Of Pakistan Finance Division Islamabad

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http://www.finance.gov.pk/MTBF_BCC_2013_14_24Dec.pdf

The ministry of finance and planning commission in a meeting mulled over the budget allocations of various ministries including the ministry of defence.

Adviser ministry of finance, Asad Amin presiding over the meeting approved a 13 percent increase in the defence budget 2013-14, taking the total allocation to Rs627 billion as against the 2012-13 budget allocation of Rs545 billion, which was later raised to Rs570 billion. – See more at:

A new political government will take over the management by June, a month in which conventionally the government proclaims the fiscal budget. Issues like law and order situation, energy crises, foreign policy issues are at hand but the foremost key challenge for the forthcoming government would be the presentation of a balance and objective budget for FY 2013-14, as it will set the priorities on the agenda of the new government. The present-day tight monetary situation will hang the government in state of bafflement since it would be nearly impossible for the government to fix the monetary issues besides announcing relaxations and incentives in order for the masses, supporters and voters to be upbeat.

It is like the handwriting on the wall that in upcoming months, the country would have to contend against stern fiscal imbalances on both internal and external accounts, if the country doesn’t approach the IMF for another bailout package. As of now, the interim government has already relinquished, saying it isn’t its mandate to apply for IMF loan.

Since many years, Pakistan has been hooked on the crises of energy shortfall, terrorism and political uncertainty, the economic growth has been crippled, investment inflows are in negative, industry is at standstill, bringing about increased poverty, unemployment which is pessimistically impacting the overall morale of the nation.

In this scenario the portfolio of new finance minister is like sitting on a powder keg. The finance minister will have no time to do much with the budget and to fix it as per the manifesto of his party, he will rather have to present and execute the already prepared budget by his exchequers.

The biggest expenditure will be on debt servicing, and the largest and prominent amongst debt payments will be of IMF, for which an installment of $ 0.84 billion is due in last week of June 2013.

The heavy debt repayments will keep the upcoming government under pressure throughout the next fiscal year until the leadership waves a magic wand to boost the foreign reserves i.e. increase in exports and foreign remittances or the country gets extraordinary financial support from its friends. The financial experts estimate that the country would have to arrange at least $5 billion to meet the two ends.

Conversely, strings would be attached with any bailout package if its given by IMF to Pakistan and the government would have to present many guarantees for effectual implementation of the conditions that might be agreed upon between the two. In all probability, the IMF will get assurance on measures to expand the tax net and measures to come to the bottom of the issue of circular debt that might result in an extraordinary hike in cost of energy.

Review FY-2012/13

The budget deficit for the current fiscal year of FY-2012/13 is likely to be around 6.5 % as against 4.7 % envisaged at the beginning of the fiscal year. The budget fiscal deficit is likely to increase primarily due to i) shortfall in estimated FBR tax revenue by Rs 188 billion, ii) non-realisation of fee from the auction of 3G licenses amount to Rs79 billion, iii) increase in domestic interest liability due to higher fiscal deficit by around Rs 100 billion, iv) increase in subsidy on electricity by Rs108 billion due to non-increase in electricity tariff, and v) increase in defence expenditure by Rs 30 billion due to increase in pay as a result of announcement by the cabinet at the time of budget 2012-13, and vi) reduction of anticipated surplus from the provinces by Rs 30 billion.

Based on the fiscal deficit of 6.5 percent of GDP, the debt to GDP ratio is likely to cross the limit of below 60 % prescribed in the Fiscal Responsibility and Debt Limitation Act 2005 by June 30, 2013.

FY-2013/14 Budget estimates & targets

The fundamental short-term risk in FY 2013/14 would be sustainability of foreign exchange reserves, which stands at $11.938 billion on April 19, including $6.8 billion of SBP reserves.

To stabilize foreign reserves, the finance division suggested three important short-term measures;

i) Auction of 3G spectrum licenses, which is likely to generate around $850 million,

ii) Negotiations with Etisalat for the realization of privatization proceeds of $800 million, and

iii) Fixation of a bond of around $500 million.

Main sectorial priorities for the budgetary allocations in 2013-14 include security and defence, energy (dams), water (dams, canals, drainage, barrages), highways, Benazir Income Support Programme, special areas including Azad Jammu & Kashmir, Gilgit Baltistan.

	Original Estimates FY-2012/13	Revised Estimates FY-2012/13	Proposed Estimates FY-2013/14
REVENUES (Rs.Bn)Tax Revenue (total) of which FBR tax Non-Tax Revenue Gross Revenues Transfer to Provinces Under NFC Award Net Revenues (Rs.Bn)	2,535 2,381 699 3,234 -1,459 1,775	2.316 2,193 639 2,954 -1,340 1,514	2,833 2,675 689 3,522 -1,628 1,894
EXPENDITURES: (Rs.Bn)Interest payments Defence Pensions Federal Government Service Delivery Subsidies Grants to Provinces Grants other than provinces PSDP Net lending etc Total Expenditures	926 545 141 262 237 57 382 360 51 2,960	1.028 570 141 262 345 58 381 360 51 3,195	1,149 627 155 278 364 54 413 450 25 3,514
Fiscal Deficit Provincial Surplus Consolidated Deficit as % of GDP	-1,186 80 -1,106 -4.7 %	-1,531 50 -1,531 -6.5%	-1,629 70 -1,550 -5.8%
Financing of deficit: Grants Domestic Loans (Net) External Loans (Net) Privatization Proceeds Total financing	38 971 22 74 1,106	45 1,428 58 0 1,531	60 1,368 41 81 1,550

Pakistan to repay IMF $1billion before June 30

Pakistan’s foreign reserves would come under severe pressure, as country would repay $533 million to the International Monetary Fund (IMF) under Stand-by Arrangement (SBA) loan facility in May 2013. The other installment of $500 million was due in June this year. The State Bank officials told Monthly Economic Affairsthat Pakistan would make repayment under IMF’s SBA loan facility in three equal phases amounting to $533 million during last week of May that would put pressure on the depleting foreign reserves of the country.

The total liquid foreign reserves held by the country stood at $11.938 billion on 19th April 2013. Foreign reserves held by the State Bank of Pakistan are $6.817 billion and net foreign reserves held by commercial banks are $ 5.121 billion. Pakistan has already paid around $3.24 billion against the total fund of $7.80 billion.

The remaining $3.2 billion would have to be returned in upcoming fiscal year 2013-14. Keeping in view the heavy debt servicing, Officials said, the country would hardly be able to pay for import bills in coming months. Moreover, the rupee is likely to remain under pressure as the foreign exchange reserves decline.
The newly elected government would have no choice but to apply for a sizable bailout package from the IMF. In the meantime, the IMF has already offered an extended fund facility (EFF) of $5 billion to bail out Pakistan after the May 11 elections. The IMF is expected to hold talks with the new elected government in June before the announcement of federal budget 2013-14.

However, to obtain the extended loan facility, the government would be required to take some key measures like adjusting power tariff, expenditure management and levying new taxes or broadening of the tax base, an official said.

http://www.finance.gov.pk/MTBF_BCC_2013_14_24Dec.pdf