Fiscal responsibility: Govt accused of violating law

RECORDER REPORT
ISLAMABAD: The government, over the past four years, has been violating the core objective of the Fiscal Responsibility and Debt Limitation (FRDL) Act of 2005 to eliminate revenue deficit from the economy via policies, a report compiled by the Auditor-General of Pakistan said.
The performance audit report on FRDL Act for the audit year 2011-12 submitted in the Senate by the Auditor-General said that instead of eliminating revenue deficit and generating revenue surplus, the revenue deficit had increased manifold since 2008.
The Section 3(3) (a) of FRDL Act, 2005, specifically provides that the government shall reduce revenue deficit to zero level by end June, 2008 and maintain a revenue surplus hereafter. The report observed that the government has been unable to meet the objective of eliminating revenue deficit from national economy till fiscal year 2011.
The report recommended that the government should give a firm commitment and timeframe for regulating the revenue deficit, as targets were being missed since 2008. The report's objective was to ascertain whether the Ministry of Finance has achieved the Fiscal Responsibility and Debt Limitation Act, 2005 core objective.
The continuous revenue shortfall over current expenditure is a reflection of non-availability of fiscal space for undertaking developing spending for which the government needs to generate a revenue surplus or at least maintain revenue balance. In fact, the revenue deficit swelled to Rs359 billion or 3.5 percent of GDP during fiscal year 2007-08, followed by Rs.191 billion, or 1.5 percent of the GDP in the subsequent year, 2008-09 and Rs.308 billion, 2.1 percent of GDP in fiscal year 2009-10. The audit report pointed out that revenue deficit ballooned to Rs647.9 billion, 3.6 percent of the GDP in 2010-11.
This is an alarming situation and unsustainable scenario as this indicator reveals that government resources are insufficient for financing not only development expenditures but current expenditures also require financing from borrowed resources.
The Auditor-General also observed that persistent revenue deficit was a source of concern.
Citing the historical track-record of revenue deficit in Pakistan, it said that the State Bank of Pakistan's (SBP) 2010 statistical handbook portrayed a bleak picture. Over the past four years, the revenue deficit remained negative, the audit report added.
The report also observed that the SBP in its Annual Report 2010-11 stated that the government was unable to meet even its revised tax collection targets. It said that it became a regular feature of Pakistan's fiscal operations that at the time of budget planning, an ambitious target was set for FBR tax collection; then it was revised several times during the year and at the end of the year, this revised target was also missed.
The Ministry of Finance has not yet filed a reply to the observations of the Auditor General of Pakistan.
The report also recommended that the government should try to enhance its revenues and regulate current expenditure to overcome revenue deficit, besides coming up with a realistic tax collection target.