KARACHI - Pakistans fiscal deficit for the first nine months (July-March) of the current financial year has increased to 4.2 per cent of GDP, compared to 3.0 per cent in July-December 2009. The fiscal deficit has reached a record Rs626 billion during July-March FY10 as against Rs405 billion in July-December FY10, depicting a jump of Rs221 billion or 54 per cent. The Ministry of Finance reported on Monday that the government has collected total revenues of Rs1, 401 billion, showing 8 per cent increase while expenditure remained at Rs2, 028 billion with 19 per cent surge in the reported nine months of FY10. The huge increase in expenditure is mainly due to relatively more spending on development, defence and debt servicing activities. According to the recently released statistics, the tax revenue amounted to Rs1, 014 billion in Jul-Mar 2009, 10 from Rs6, 591 billion during July-Dec 2009. Non-tax revenues added Rs3, 872b to total revenues during July-Mar FY10. Economic experts see the upcoming budget will focus aggressively on containing this deficit through aggressive revenue generation coupled with controlling expenditure. Otherwise meeting IMF deficit guidelines would be difficult in future after getting relaxation on this in the last review. It may be mentioned that the central bank in its recent monetary policy document warned that government may miss the revised fiscal deficit target of 5.1 percent of GDP, which will be inconsistent with the objectives of macroeconomic stability. Moreover, further worsening of the fiscal account will have consequences for debt sustainability and the external balances. The SBP further stated that with inflation on the rise and the fiscal position not responding to the current monetary policy stance, SBP will closely monitor developments to ensure stability of aggregate prices and support nascent recovery of private economic activity. It suggested that the revenue deficit, the difference between total revenues and current expenditure, must be brought down to zero as stipulated in the Fiscal Responsibility and Debt Limitation (FRDL) Act of 2005. It was 1.5 percent of GDP in FY09 and may cross 2 percent of the expected GDP in FY10. Cutting development expenditures may provide immediate relief but damages the prospects of much needed investment in infrastructure such as electricity generation and human capital. This, in turn, limits the future productive capacity of the economy and adversely affects the inflation outlook as the gap between aggregate demand and aggregate supply widens. The SBP also advised the government must take effective measures to increase the tax-GDP ratio and reduce the current expenditures, which is necessary for medium term fiscal sustainability and for overall macroeconomic stability of the country. It revealed that the Federal Bureau of Revenues (FBR) provisional tax collection figures, during the first ten months of the current fiscal year, were Rs1026 billion. This implies that, to meet the yearly target of Rs1380 billion, a collection of another Rs354 billion is required in the next two months. This would be quite challenging given a monthly average of Rs102 billion in the last ten months. Even if the target is met, the FBR tax-GDP ratio is likely to be less than 10 percent, which is one of the lowest in the world.