Budget deficit in line with forecast
Debt servicing cost may further increase due to anticipated increase in interest rate. photo: file
The federal budget deficit widened to Rs745 billion in three months, which is in line with annual estimates, but the danger of slippages remains due to the fall in non-tax revenues and the surge in debt servicing cost owing to a possible hike in interest rate.
The Rs745 billion deficit - the gap between federal income and expenditures - during the July-September quarter of current fiscal year was equal to 1.4% of gross domestic product (GDP), according to Ministry of Finance officials.
The deficit was higher when compared with the same period of last fiscal year, both in absolute terms as well as in terms of the size of national economy.
During the July-September period of previous fiscal year, the federal budget deficit had amounted to Rs529 billion or 1.2% of GDP, said the officials.
The gap between the federal income and expenditures grew despite a healthy momentum in Federal Board of Revenue’s (FBR) tax collection in the first quarter. The gains made by the FBR were offset by a 24% dip in non-tax revenues, according to the officials.
Prime Minister Imran Khan on Saturday congratulated the FBR for achieving 34% growth in revenue collection in the first four months of current fiscal year. The premier attributed the growth in collection to the “robust economic performance”.
The FBR provisionally got Rs1.4 trillion in revenue during the first quarter, up by Rs384 billion or 38%. The three-month collection was also equal to nearly one-fourth of the annual target, which the FBR is now poised to achieve for the first time in 13 years.
However, the non-tax revenue collection stood at only Rs262 billion during the first quarter of current fiscal year, down Rs81 billion or 24% against the same period of previous fiscal year. The non-tax revenue collection was equal to only 13% of the annual target of Rs2.1 trillion.
During the post-budget press conference, Finance Adviser Shaukat Tarin had been asked as to why an over-ambitious Rs610 billion petroleum levy collection target was set for the current fiscal year.
The prime minister on Saturday also turned down a proposal to increase petrol prices by Rs11.53 to nearly Rs150 per litre. This will provide a respite to the inflation-stricken people but will keep denting the government’s non-tax revenues.
The government’s gross revenues increased over 22% to Rs1.7 trillion in three months. It paid Rs808 billion to the four provinces as their share under the extended seventh National Finance Commission (NFC) award, leaving it with Rs850 billion in net federal revenues.
The federal government’s spending on debt servicing and defence jumped to Rs990 billion in the first quarter, which was Rs137 billion more than its net revenues, keeping the country deeper into debt trap.
Some of Pakistan’s fiscal challenges are rooted in the high debt stock, which is over 90% of GDP including the publicly guaranteed debt, said Zehra Aslam, an economist with the World Bank, while speaking at the Express News programme, The Review, on Saturday.
The Rs990 billion spending on the two major heads consumed 70% of the FBR’s tax collection.
The debt servicing cost may further increase due to an anticipated increase in interest rate, which the central bank has also hinted at in its last monetary policy statement.
Total federal expenditures during the first quarter amounted to Rs1.59 trillion, up by Rs200 billion or 15% over the same period of last fiscal year.
Development spending stood at Rs100 billion, which was Rs17 billion more than the previous fiscal year, under the Public Sector Development Programme (PSDP).
Sources said that the overall budget deficit - including provincial savings - in the first quarter widened to Rs503 billion or 0.9% of GDP. The overall deficit was within the target set by the government.
However, a reason behind the budget deficit standing at 0.9% of GDP was the Rs241 billion in savings by the provincial governments against the income they received from the federal government under the NFC.
The federal government borrowed Rs745 billion in the first quarter of current fiscal year to fund its expenditures, which has become part of its overall debt. It arranged Rs390 billion in foreign financing and Rs354 billion in domestic debt to fill the budget gap.
When the Pakistan Tehreek-e-Insaf government assumed power three years ago, the overall budget deficit was equal to Rs2.2 trillion or 6.6% of GDP. The government could not contain it due to a decision by the central bank to increase interest rates to 13.25% and missing tax collection targets during the past three years.
Published in The Express Tribune, October 31st, 2021.
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