Govt still stuck in fiscal quagmire

Gross revenues decrease but expenditures grow at double-digit pace

ISLAMABAD:

The Pakistan Tehreek-e-Insaf (PTI) government remained in a fiscal quagmire in the first quarter of current fiscal year as its gross revenues decreased but expenditures grew at a double-digit pace due to 30% increase in debt servicing cost.

Both defence and development spending fell in the first quarter of fiscal year 2020-21 as compared to the same period of last year, according to the fiscal operations summary released by the Ministry of Finance on Wednesday.

Cumulative spending of Rs966 billion on debt servicing and defence needs in the first quarter was equal to 96% of total taxes collected by the Federal Board of Revenue (FBR) in the July-September period. The FBR pooled Rs1.01 trillion in the quarter.

The development spending dipped 1.4% in July-September FY21 as the new development budget releases strategy could not help. The Ministry of Planning and Development had authorised expenditure of Rs117 billion for the Public Sector Development Programme (PSDP) but actual spending remained at just Rs70.7 billion, 1.4% less than the first quarter of last fiscal year.

The fiscal operations summary does not suggest that Pakistan is out of the fiscal woes and key indicators do not portray healthy trends. The release of the summary coincided with Prime Minister Imran Khan’s this week claim of putting the economy on the right track.

The federal budget deficit - gap between expenditures and revenues - remained at Rs529 billion or 1.2% of gross domestic product (GDP), according to the finance ministry.

From July through September, the federal government spent Rs742 billion on debt servicing, which was higher by Rs170 billion or 30% over the same period of previous year, stated the ministry.

Domestic debt servicing stood at Rs685 billion, 39% higher than the same period of last year. The domestic debt servicing jumped despite a significant decrease in the cost of borrowing after the cut in key policy rate. However, foreign debt servicing came down to Rs57 billion, a reduction of 27% due to a temporary debt relief from G20 countries.

Meanwhile, defence spending stood at Rs224 billion in the quarter under review - down 7.7% or Rs18.6 billion.

Cumulatively, the federal government spent Rs966 billion on debt servicing and defence needs of the country in the first quarter of current fiscal year, which was more than its net income despite a double-digit growth in revenues.

After making payments for debt servicing and defence-related obligations, the net federal revenues for the July-September quarter of FY21 were negative Rs106 billion, according to the fiscal operations summary.

The FBR pooled Rs1.01 trillion in the first quarter. The debt servicing was equal to 73.5% of the FBR’s revenues and defence spending was equal to 22% of the revenues.

Net federal receipts are calculated after excluding the share of four provinces from the gross federal receipts. Gross federal receipts stood at Rs1.35 trillion, which decreased Rs6 billion over the same quarter of previous year.

The share of provinces in federal collection also went down by Rs108 billion or 18% to Rs504 billion despite a 4.7% increase in the FBR’s tax collection. The four provinces get 57.5% of federal taxes as their share under the National Finance Commission (NFC) award.

The government’s non-tax revenues also dropped 13% to Rs343 billion despite a 109% increase in petroleum levy rates. The petroleum levy collection stood at Rs136 billion, up Rs71 billion. There was 43% reduction in central bank’s profit that plunged to Rs105 billion in the first quarter of FY21 against earnings of Rs185 billion in the same period of last year. It was due to the reduction in interest rate.

Pakistan Telecommunication Authority’s revenues dropped to just Rs8 billion in the quarter under review as against Rs72 billion in the same period of last year.

After paying Rs504 billion to provinces, the net federal revenues amounted to Rs850 billion, which was higher by Rs103 billion than the first quarter of last fiscal year owing to the higher petroleum levy collection.

Total federal expenditures stood at Rs1.4 trillion, which were higher by Rs189 billion or 16% over the same quarter of last fiscal year. There was an increase of 16.4% in current expenditures in the first quarter, which stood at Rs1.3 trillion.

Development spending in the first quarter dipped 1.4% to Rs70.7 billion. It was equal to only 11% of the annual PSDP of Rs650 billion. Spending on pensions reduced by Rs10 billion to Rs89 billion.

Published in The Express Tribune, November 6^th, 2020.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.