Budget deficit as high as 14% of GDP in 2014, and not 5.2%!

Friday, 31 October 2014 01:53 - - {{hitsCtrl.values.hits}}

By Economicus This piece of work took place after noting a conspicuous absence of a value for current price GDP (hereafter referred as nominal GDP) for 2014 and beyond either in the Budget Estimates 2015 or Fiscal Management Report of the Ministry of Finance and Planning. These two documents are the basis for this write-up. Even if nominal GDP is not given, one can easily derive it if the GDP share (percent of GDP) of a revenue/expenditure item is given, as well as the total magnitude of that revenue/expenditure item is given. For example according to the Fiscal Management Report 2015, total revenue as a percentage of GDP in 2014 is given as 14.2 percent. The total revenue for 2014 is Rs.1,378,500 million as given by Budget Estimates 2015, Vol.III. Therefore, (1,378,500/GDP) x 100 =14.2 Rearranging, GDP = Rs. 9,707,746.4 million. Now, in 2014, total expenditure is estimated at Rs. 2,731,000 million in the Fiscal Management Report 2015. So, if we use the GDP figure, we get, total expenditure as a percentage of GDP as (2,731,000/9,707,746.4) x 100 = 28.1 Therefore, the budget deficit as a percentage of GDP=14.2% - 28.1% = -13.9% So, the budget deficit as a ratio of GDP is as high as 14 percent in 2014, and not 5.2 percent as claimed by the authorities. As a counterfactual, the following is interesting. Assume the GDP share of total expenditure of 19.4 percent given in the Fiscal Management Report is correct for 2014. Given that total expenditure is Rs. 2,731,000 million (Budget Estimates 2015), what nominal GDP will give a percentage share of 19.4 percent? (2,731,000/GDP) x 100 = 19.4 Rearranging, we get a nominal GDP figure for 2014 of Rs.14,077,319 million. This is an absolutely impossible figure for GDP in 2014. The values of nominal GDP in the years leading up to 2014 are, 2011 - Rs. 6,544,009 million, 2012 – Rs. 7,578,554 million, and 2013 – Rs. 8,673,870 million. Whatever way we look at it, the budget deficit for 2014 is very much more than 5.2 percent of GDP, and is nearly 14 percent. The findings here for 2014 apply as well to the projected years of 2015 to 2017 in the Finance Ministry documents.

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