The decrease in revenues and increase in government expenditure led to budget deficit, resultantly the government need to do heavy borrowing from central and commercial banks.
According to the estimates of International Monetary Fun (IMF), the budget deficit could go up to 6.7 percent of GDP equivalent to Rs1,442 billion for the current fiscal year.
The government has already borrowed over Rs1 trillion till first of week of April 2012 to finance its budget deficit of around Rs1,442 billion. The budget deficit hiked by 1.9 percent of GDP in the outgoing fiscal year after government’s decision to take Rs391 billion subsidies of power sector and commodities on books during the current fiscal year.
The government’s primary balance would be standing in the range of deficit 2.9 percent of GDP in fiscal year 2011-12 and projected to decline to 1.7 percent of GDP by next fiscal year, IMF said.
The situation will extremely grim as the government in its plan to manipulate masses opinion will present a tax free budget for attracting votes in the next election, hence the situation for the economic managers will be difficult in the next coming months.
Therefore, the government will continue to maintain its policy on agriculture tax, which has major contribution to economy. Whereas taxes on real estate, stock share and tractors are likely to be declined or kept same that will not only make tax collections and its GDP ratio more vulnerable.