Budget deficit to touch record Rs4.3tr

Gap is widening despite reduction of Rs200b in federal development budget

ISLAMABAD:

The federal government will miss its budget deficit target by Rs318 billion and could book, for the first time in history, over Rs4.3 trillion deficit in the current fiscal year, the finance ministry informed the federal cabinet.

The record Rs4.3 trillion federal budget deficit will be equal to 8% of the gross domestic product (GDP) on the basis of old base year of the economy and 5.8% of the new base year. However, the revised GDP base year has not yet been approved by the governing council of Pakistan Bureau of Statistics (PBS).

The deficit will stay high despite the fact that the government has squeezed the federal development budget by at least Rs200 billion, showed the Mid-Year Budget Review Report 2022.

The gap of Rs4.3 trillion is being bridged by taking more domestic and international loans.

The report has been submitted to the cabinet under the statutory requirement and covered actual results of the first half of current fiscal year and the expected outcome in the remaining period.

The Rs4.3 trillion deficit was Rs318 billion higher than the target set by the government in June last year.

It came despite the fact that the government imposed a Rs360 billion mini-budget and the Federal Board of Revenue (FBR) made windfall gains in tax collection on higher imports and higher inflation.

“The increase in current expenditures is expected due to rising interest payments, Covid-19 related spending, energy subsidies, social safety net expenditures and running of civil government,” said the Ministry of Finance report.

Against the budgeted amount of Rs7.5 trillion, the government now expects current expenditures at Rs7.7 trillion.

“Adjustments are required to be made in Public Sector Development Programme (PSDP) allocation due to higher-than-estimated recurrent expenditures.”

The report has shown PSDP spending at Rs700 billion against the budgeted estimate of Rs900 billion.

However, Finance Minister Shaukat Tarin has already said that the PSDP would be slashed further to create room for spending on the PM’s relief package.

The PSDP spending remained only slightly above half of the money that the government had authorised for spending in the first half of current fiscal year.

The government has shown the overall primary budget deficit at Rs665 billion by June this year, breaching the commitment made to the International Monetary Fund (IMF) to show a surplus of Rs25 billion.

At the time of approval of the budget, the estimated size of the economy was Rs53.9 trillion that after the recent rebasing exercise is now projected at Rs64 trillion – providing an additional cushion of Rs102 billion for every percentage of GDP.

Total expenditures of the federal government are still shown at less than Rs8.5 trillion, although huge slippages are expected due to the PM’s relief package-related spending.

On the revenue side, the FBR’s target has already been revised upwards to Rs6.1 trillion against the budgeted number of Rs5.83 trillion.

The FBR has not yet adjusted its monthly targets aimed at highlighting excess collection of Rs268 billion against the eight-month revenue target.

The cabinet has been informed that against the budgeted figure of nearly Rs2.1 trillion, the non-tax revenue collection could be around Rs1.65 trillion – a reduction of Rs428 billion, or 21%.

This will have a direct bearing on the next federal government revenues, which are now projected at just Rs4.1 trillion – lower by Rs344 billion against the budgeted target.

During the first half, the non-tax revenue collection came in at only Rs715 billion – even lower than the previous fiscal year.

The cabinet was informed that the non-tax revenue collection was equal to only 69% of the half-year estimate due to less collection of petroleum development levy, gas infrastructure development cess (GIDC) and dividends from government-owned companies.

Due to the increase in FBR’s tax collection, the provincial share will rise from Rs3.4 trillion to Rs3.6 trillion. The government expects them to generate Rs570 billion in cash surplus to show the overall budget deficit at a lower level.

During the first half, the FBR’s tax collection grew one-third to Rs2.9 trillion.

The federal budget deficit in the first half was Rs1.85 trillion while the primary deficit, after excluding interest payments, stood at Rs400 billion, according to the report.

A major chunk of current expenditures went to interest payments that consumed Rs1.45 trillion, or 47% of the annual interest payment estimates. Compared to that, the defence expenditure during the first half was equal to 38% of the annual estimate.

A major chunk of Rs171 billion was shown as social protection spending, which was Rs100 billion more than the first half of the preceding fiscal year.

Published in The Express Tribune, March 10^th, 2022.

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