According to SBP’s first quarterly report, the budget deficit in the first quarter of FY12 was 1.2 percent of GDP, compared with 1.5 percent during the same quarter of the last year.

The reduction in the budget deficit was caused primarily by sharp rise in tax collection on the back of increased tax collection efforts as well as high growth in taxes on imports, the report said and added that at the same time expenditures also showed higher growth than last year.

“The upside is that some of this growth was tilted towards development expenditures.”

“Financing of the deficit, however, remained an issue as the government could not mobilise external resources to finance the budget deficit”, the report said.

During the quarter, repayments of external loans were higher than receipts of new loans, resulting in net external financing of negative Rs 4.4 billion in Q1-FY12. As a result, all the burden of financing fell on domestic sources, it added.

Going forward, SBP said that it will be challenging for the government to achieve its fiscal deficit target of 4.7 percent of GDP mainly because (1) the strong growth in tax revenue was largely due to import-related sales tax, which was supported by higher unit value of crude oil and fertilizers during the quarter.

However, this gain in taxes could be offset by subsidies both on fertilizer and POL in the months ahead; (2) heavy dependence (Rs 150 billion) on the realisation of CSF and 3G licences; and (3) the expected surplus of Rs 125 billion in the provincial balances.

While issuance of 3G licences is scheduled for Mar 2012, the CSF and provincial surpluses are already lagging.