Fiscal discipline: It’s going to get worse before it gets better

Don’t expect any miraculous improvement to the economy.

Nojeba Haider June 27, 2011

According to provisional data released by the Ministry of Finance (MoF), federal fiscal deficit for Jul’10-Mar’11 stood at PKR 783 billion (4.5% of GDP) in contrast to PKR626 billion in the prior year.

In this period, provinces posted surplus of PKR 102 billion in contrast to PKR 38 billion last year. Despite the provincial surplus, the federal fiscal deficit remained high as rigid government spending patterns on defence and interest payments along with lower non-tax revenue collection fuelled the fiscal imbalance.

Total revenue collection during Jul’10-Mar’11 increased 7% year-on-year to Rs1.5 trillion with tax revenue registering growth of 10% to stand at Rs1.1 trillion. Within tax revenue, Federal Board of Revenue (FBR) collection stood at Rs1.0 trillion (up 12% year-on-year). Analysing tax composition reveals sales tax and taxes on international trade increased by 15% and 14% respectively during Jul’10- Mar’11, increasing their share in total revenue collection to 28% and 9% each. Further, direct taxes witnessed growth of 9% year-on-year, increasing its share in total revenue to 25% in contrast to 24% during the same period last year.

Revenue composition- July 2010- March 2011

Rising expenditures continued to strain the fiscal imbalance as they registered growth of 12% year-on-year during Jul’10- Mar’11. Current expenditure increased 15% year-on-year on the back of higher debt servicing costs (up 7% year-on-year) and defense related expenditures (up 24% year-on-year).

Government expenditures continued to lack flexibility, which resulted in development expenditure declining 22% year-on-year to Rs282 billion from Rs347 billion during the same period last year.

The fiscal deficit continues to soar as growth in expenditure continues to outpace revenue growth. Burgeoning deficit remains a cause for concern as financing pressures increase. Fiscal deficit for Jul’10-Mar’11 stood at Rs783 billion, which in the absence of foreign inflows remains dependent on domestic borrowings. For the period under review, external inflows have contributed Rs83 billion (11% of deficit) against Rs93 billion (15% of deficit) during the previous year. With limited external inflows, borrowings from bank and non-bank sources have increased to Rs316 billion and Rs384 billion respectively from Rs210 billion and Rs322 billion during Jul’09-Mar’10.

Revenue collection continues to fall short of targeted amount, which coupled with rising expenditures, continues to strain the fiscal balance. With fiscal deficit reaching 4.5% of GDP during Jul’10-Mar’11, full year envisaged target of 5.5% will likely be missed. This will likely translate into higher bank borrowings as external inflows remain low, impacting domestic liquidity along with limiting private sector credit.

Published in The Express Tribune, June 27th, 2011.


Taha | 10 years ago | Reply Informative piece. Dont know what our government is doing. Fiscal deficit, circular debt crisis worsening. Where does all the money go
Moise | 10 years ago | Reply Lipstick might help.
Replying to X

Comments are moderated and generally will be posted if they are on-topic and not abusive.

For more information, please see our Comments FAQ


Most Read