Devaluation of the rupee and high interest rate caused a double-digit increase in the debt servicing cost in the current fiscal year as compared to last year. PHOTO: FILE
ISLAMABAD: The federal government spent Rs814 billion on debt servicing and defence needs of the country in first quarter of the current fiscal year, which was more than its net income despite a double-digit growth in revenues.
The constant high bill of debt and defence once again highlights that the Pakistan Tehreek-e-Insaf (PTI) government still lacks fiscal space for stimulating the economy and spending on human development.
After making payments for debt servicing and defence-related obligations, the net federal revenues for the July-September quarter of fiscal year 2019-20 were negative Rs67 billion, according to the federal fiscal operations summary that the Ministry of Finance released on Saturday.
Circular debt projected to touch Rs1.7t
The summary also showed that despite massively squeezing expenses on human development in the first quarter, there was still double-digit growth in federal expenditures.
The cumulative spending of Rs814.2 billion on debt servicing and defence needs was equal to 84.4% of the total taxes collected by the Federal Board of Revenue (FBR) in the first quarter. The FBR pooled Rs964.4 billion in the first quarter.
From July through September, the federal government spent Rs571.6 billion on debt servicing, which was higher by Rs64.6 billion or 12.8% over the same period of previous year. Domestic debt servicing stood at Rs494 billion, up by 7.1%. However, foreign debt servicing ate up Rs77.7 billion, an increase of 70%.
The devaluation of the rupee against the US dollar and an unrealistically high interest rate caused the double-digit increase in debt servicing cost in the current fiscal year as compared to last year.
Defence spending stood at Rs242.6 billion in the quarter under review - up by 10.7%.
Net federal receipts are calculated after excluding the share of the four provinces from gross federal receipts. Gross federal receipts stood at Rs1.4 trillion, which increased by 36% over the same quarter of previous year due to an exceptional profit showed by the State Bank of Pakistan (SBP) and higher taxes on petroleum products.
The share of provinces in the federal collection went down by Rs51 billion or 7.7% to Rs612 billion despite an increase in tax collection by the FBR. The four provinces get 57.5% of the federal taxes as their share under the National Finance Commission (NFC) award.
The higher spending suggested that the government was not yet out of the woods, although its overall budget deficit stood at only 0.7% of gross domestic product or Rs286 billion in the first quarter.
There was 50% reduction in the overall budget deficit in the first quarter, largely because of higher revenue surpluses showed by the four provinces. The government’s tax revenues, non-tax revenues and other taxes also grew in double digits in the first quarter but higher spending left insignificant room for expenditure on human development.
Educational spending by the federal government went down by 47% to Rs1.9 billion in the first quarter.
The federal government’s total gross revenues stood at Rs1.4 trillion, which were higher by Rs357 billion or 36%. Tax revenues also showed 17% increase in the first quarter and stood at Rs1.03 trillion.
Other taxes grew by 37% to Rs74 billion because of increase in petroleum levy rates. The petroleum levy collection stood at Rs64.7 billion, up by 45.4%. Non-tax revenue collection increased to Rs321.2 billion, showing 126% growth in the first quarter. This was because of central bank’s profit of Rs185 billion in the first quarter against earnings of Rs50 billion in the same period of last year.
After paying Rs612 billion to provinces, the net federal revenues amounted to Rs747 billion, which was still better than the first quarter of the last fiscal year.
Pakistan's external debt, liabilities rise $600m
Total federal expenditures stood at Rs1.2 trillion, which were higher by Rs116 billion or 11% over the same quarter of last fiscal year. There was an increase of 8.7% in current expenditures in the first quarter, which stood at Rs1.1 trillion.
Development spending in the first quarter increased 79% to Rs93.5 billion. But it was equal to only 13.3% of the annual Public Sector Development Programme (PSDP) of Rs701 billion.
The federal budget deficit in the first quarter was Rs442 billion, which was equal to 1% of GDP. The federal deficit was lower by two-thirds as compared to the same period of last year, when it stood at Rs733 billion.
Published in The Express Tribune, December 1st, 2019.
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