Accuracy of Revenue Forecast: Analysis of Pakistan’s Federal Revenue Receipts

Muhammad Ali Qasim and Mahmood Khalid

Abstract

The government budget plays an important role in determining economic growth of a country. The accurate determination of budget estimate for revenue and expenditure is the key for successful implementation of budget plan. Any significant variation in determination of either of these budget estimates from the accurate budget estimates can have far reaching economic implications. The revenue receipts are one of the most significant parts of the overall resource envelope of a country. Therefore, there is a need to analyze accuracy of budgetary forecast for revenue receipts. This study conducts an exercise on accuracy of Pakistan’s Federal Revenue receipts budgetary forecasts. The study identify that there is a significant difference between the budget estimates of Federal Revenue receipts and actual revenue receipts. This difference also holds for different components of revenue receipts. Further analysis is done for pre and post 1990s reforms. The revenue forecasting has not improved during post reforms period due to a number of reasons. The reforms did not have revenue forecasting as one of the objectives, secondly the estimates rely heavily on the accuracy of macroeconomic forecasts and the buoyancy measures. These are not up to the mark. With this analysis, policy recommendations for increasing the certainty in fiscal instruments are drawn.