| GEO Business|
| Budget deficit to overshoot target|
| Updated at: 1753 PST, Thursday, April 22, 2010|
KARACHI: Pakistan's budget deficit may reach 5.5 percent of gross domestic product this fiscal year, officials said on Thursday, overshooting a 5.1 percent target agreed with the International Monetary Fund (IMF).
The IMF board is scheduled to meet on May 3 to discuss the approval of a fifth tranche of a $1.2 billion loan.
"There is now a fear that the budget deficit for the current fiscal year may go beyond 5.2 percent and may touch 5.5 percent," said a senior official in the Planning Commission, who is also involved in drawing up the next budget.
Big security-related spending and a shortfall in aid promised by allies were the main reasons for the growing deficit, the official said.
The government's original budget deficit target for the 2009/10 (July-June) fiscal year was 4.9 percent of GDP. It later revised it to 5.1 percent.
Analysts and officials have also identified low revenue collection as another reason for the widening deficit.
Exacerbating the problem, the government was still paying out subsidies in the power sector, said Asif Qureshi, director at Invisor Securities.
The government had targetted an increase of 19.2 percent year-on-year in revenue collection for the 2009/10 fiscal year.
But according to official data, revenue collection increased by only 11 percent year-on year in the first eight months of the fiscal year.
The target for revenue collection this fiscal year is 1,380 billion rupees ($16.46 billion).
However, the Planning Commission official said there could be a shortfall of up to 40 billion rupees in revenue collection.
The central bank last month also raised its fiscal deficit forecast for the 2009/10 fiscal year to between 5.0 percent and 5.5 percent of GDP, compared with its previous forecast of 4.7-5.2 percent.
The budget deficit for the first six months of the fiscal year was 2.7 percent of GDP. It was 5.2 percent of GDP in 2008/09.
The advisor to the prime minister on finance, Hafiz Shaikh, left for Washington on Tuesday for the IMF's and World Bank's spring meetings on April 24-25.
Sources said Pakistan would also discuss issues pertaining to value added tax (VAT) and electricity tariffs.
"The issues of VAT and electricity tariffs have not yet been resolved and they are likely to be discussed on Hafeez Shaikh's visit to the IMF and World Bank," said a Finance Ministry official.
Pakistan had promised the IMF it would introduce VAT by July 1 but analysts and officials said there seemed to be doubts over the plan.
The IMF wants Pakistan to introduce a VAT to raise its ratio of tax revenue to GDP by 3 to 4 percent.
The IMF said this month the introduction of a broad-based VAT by the July target date was "essential".
Under the IMF programme, the deadline for an increase of 6 percent in electricity tariffs was April 1 but the government has not raised the tariff and analysts said the government was likely to ask for a waiver.