July-October: All avenues exhausted, still revenues fall

Net receipts of govt stand at Rs600b, down Rs16b from last year.

ISLAMABAD:

As the government has exhausted all available avenues to enhance its non-tax income, the net revenue receipts fell to Rs600 billion in July-October this year while expenses grew at a faster pace to Rs1.1 trillion on the back of mounting debt servicing burden.

Fresh data for the first four months of the current fiscal year underlines the need for introducing drastic reforms to overhaul public finances after the government utilised all options that had ramped up revenues in the comparative period of previous fiscal year.

Last year, the country managed to show a better fiscal performance despite its failure to undertake much-needed reforms. Following the fall in revenue collection which slipped even below last year’s level, the federal budget deficit – the gap between income and expenditures – widened to Rs505 billion or 1.74% of gross domestic product in July-October of the current fiscal year, according to officials of the Ministry of Finance.

Net revenue receipts stood at Rs599.8 billion, which were Rs16 billion or 2.7% less than the corresponding period of previous year. In July-October 2013-14, net receipts were Rs616 billion.

Though tax revenues fell short of the target, the Federal Board of Revenue’s collection grew slightly over 12% to Rs705 billion compared to the collection in the previous fiscal year. However, its non-tax revenues dropped 26% or Rs89 billion to Rs245 billion in the four-month period.

In the first four months of the last fiscal year, the government’s non-tax income stood at Rs334 billion after it recorded previous year’s earnings. For instance, it showed income from the mark-up of public sector enterprises at Rs56.9 billion, which came down to just Rs1.2 billion in the current year.

The Rs67.6 billion cushion from the Universal Services Fund of telecom companies that the government got last year was also no more available, as it has shown zero income in the current year.

Because of short-term political gains, the government has been reluctant to introduce pressing tax reforms, which has compounded the problems. Instead of broadening of the tax base, it actually shrank in the first year of the PML-N government.

Expenses

In July-October this year, total expenditures of the federal government stood at Rs1.1 trillion excluding foreign loan repayments. With the inclusion of loan repayments, total spending would go up to Rs1.19 trillion. The government spent 28% of its annual budget in the first four months.

Debt servicing and repayment of foreign loans was the single largest expenditure in the budget. It ate up Rs557.4 billion or 48% of total expenditures.

Of this, Rs434.4 billion or 36% of the annual budget was spent on servicing of domestic debt, Rs38.1 billion on servicing of foreign debt and another Rs85 billion on foreign loan repayments.

Expenditures on paying salaries to armed forces and their civil works stood at Rs217.5 billion. It did not include other expenses of the armed forces. An amount of Rs55.5 billion was spent on superannuation allowances and pensions.

However, the worrisome element was the shrinking development spending that amounted to just Rs62.7 billion or 12% of the annual budget. The figure was even lower by Rs6.2 billion compared to the corresponding period of last year. Sources said the annual development programme of Rs525 billion could be slashed by at least Rs100 billion to make up for the falling revenues.

Published in The Express Tribune, December 11^th,  2014.

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