Budget gap widens 33% in July-December
Quality of debt and fiscal policy statements has been greatly compromised since the budget wing took over the job of publication from the Debt Policy Office. photo: file
The government on Wednesday revealed the country’s fiscal health, confirming that the federal budget deficit in the first half of current fiscal year shot up to Rs1.85 trillion, up 33% compared to the same period of previous year.
The deficit mainly widened because of higher expenditures as the revenue remained better than the budgetary estimates, showed the fiscal operations summary for July-December of current fiscal year.
The Ministry of Finance released the summary, showing that the fiscal position was weakening.
The federal budget deficit – the gap between income and expenditures – was provisionally recorded at Rs1.85 trillion for the July-December period of ongoing fiscal year 2021-22.
The deficit cannot be compared in terms of the size of economy, as the ministry has used the new base year for the current fiscal year without updating the last fiscal year’s fiscal operations on the basis of new methodology.
However, the governing council of Pakistan Bureau of Statistics (PBS) has not yet validated the shifting of the base of economy from 2005-06 to 2015-16.
During the first half of previous fiscal year, the federal budget deficit had been slightly lower than Rs1.4 trillion.
The annual federal budget deficit target is Rs4 trillion for the current fiscal year. Usually, heavy spending is made in the last quarter of every fiscal year.
The Pakistan Tehreek-e-Insaf (PTI) government took a net Rs1.02 trillion in foreign loans to finance the federal deficit. External financing for bridging the deficit was 126% more than the previous year, underscoring the country’s increasing reliance on foreign players to meet its expenditure needs.
Another Rs826 billion was borrowed from domestic sources to bridge the budget gap.
A major reason behind the surge in deficit was the uptick in current expenditures, as the government spent a lower amount under the Public Sector Development Programme (PSDP) to meet a condition of the International Monetary Fund (IMF).
The provisional fiscal operation figures indicated that the government’s strategy to contain the growing public debt by concentrating on increasing revenue may not help in a significant way because most of the Federal Board of Revenue (FBR) taxes were being transferred to the provinces.
Current expenditures were equal to 92% of the total federal government expenditures and over 38% of them were spent only on paying interest on loans.
Federal development spending stood at only Rs288 billion in the first half of current fiscal year, which was higher than the comparative period of previous year, but constituted only 32% of the annual budget of Rs900 billion.
Finance Minister Shaukat Tarin said in November that PSDP would be slashed by Rs200 billion to Rs700 billion to reduce the spending bill aimed at rationalising the expenditures. The IMF has projected federal PSDP spending of only Rs554 billion in its report released last week.
Development spending was higher by 24% (Rs56 billion) compared to the same period of previous fiscal year, which was not in line with the annual allocation.
The gap between federal income and expenditures grew despite a healthy momentum in the FBR’s tax collection. The tax collection increased nearly one-third to Rs2.92 trillion in the first half of current fiscal year on the back of higher collection at the import stage.
However, the gains made by the FBR were offset by nearly 17% dip in non-tax revenue.
Non-tax revenue collection amounted to Rs715 billion in the first half, down Rs147 billion compared to the same period of previous year. The non-tax revenue collection was equal to only 35% of the annual target of Rs2.1 trillion.
Gross federal revenue receipts increased to Rs3.64 trillion, up 18%. After paying Rs1.7 trillion to the provinces as their share in the National Finance Commission award, the net federal government’s revenue was only Rs1.94 trillion.
Total expenditures incurred by the federal government stood at Rs3.8 trillion, almost double the net government revenue, thanks to the uncontrolled current expenditures that were eating into the tax revenue.
Current expenditures amounted to Rs3.4 trillion, up 19% or Rs544 billion, during the first half of current fiscal year. Interest payments stood at Rs1.45 trillion, slightly less than the previous year, but consumed 72% of the government’s net revenue.
Some analysts argue that the central bank’s interest rate should not be more than 6-7% to control the growing budget deficit. They say a one-percentage-point increase in interest rate jacks up the debt servicing cost by around Rs150 billion.
The government has enforced a Rs360 billion mini-budget by imposing 17% sales tax on over 140 goods.
Published in The Express Tribune, February 10th, 2022.
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