Pakistan booked a record federal budget deficit of nearly Rs5.5 trillion in the last fiscal year, breaching the annual target by a wide margin of Rs1.5 trillion due to imprudent fiscal policies of the Pakistan Tehreek-e-Insaf (PTI) government that led to the overshooting of expenditures.
Figures released by the Ministry of Finance showed that the federal government exceeded the budget deficit target by 37%, which skyrocketed to Rs5.5 trillion in fiscal year 2021-22 that ended on June 30. The target was just under Rs4.4 trillion.
The PTI remained in power till the first week of April, covering most of the previous fiscal year. After taking office, the Pakistan Democratic Movement’s (PDM) Finance Minister Miftah Ismail said that the federal budget deficit might increase to Rs5.6 trillion due to the huge pending liabilities, left behind by the previous government.
The PTI government gave fuel subsidies that drained the government’s resources and also caused disruption to the International Monetary Fund (IMF) loan programme.
In terms of the size of economy, the federal budget deficit was equal to 8.2% of gross domestic product (GDP), on the basis of the new size of GDP, which was estimated at Rs67 trillion.
However, on the basis of old GDP that had also been used to set budget targets in June last year, the federal deficit was equal to 10.2% of GDP. The previous government updated the methodology and changed the base year, which was in line with international best practices.
The disappointing results have turned current fiscal year 2022-23 budget largely irrelevant within two months of its approval by the National Assembly. The results have also put a question mark over the government’s ability to deliver on promises made to the IMF.
During the last fiscal year, the federal government’s total expenditures shot up to Rs9.2 trillion, exceeding the budget target by Rs730 billion, or 8.6%. This has also made the Rs9.58 trillion expenditure target for the current fiscal year unrealistic.
This year’s expenditure allocation is only 3.4% higher than the previous fiscal year, despite 25% inflation in the country. Current expenditures increased to Rs8.67 trillion in the last fiscal year, breaching the budget target by Rs1.1 trillion, or 14%. This will have implications for current year’s current expenditure target of Rs8.7 trillion, largely due to a higher interest payment cost.
In the last fiscal year, the country made Rs3.2 trillion worth of interest payments – Rs120 billion more than the budget target. Defence spending stood at Rs1.41 trillion, also more than the annual allocation.
The spending on interest payments consumed 85% of the net federal government revenue of Rs3.74 trillion.
Net federal revenue was not even sufficient to fund debt and defence expenditures that stood at Rs4.6 trillion in the last fiscal year.
Development spending was only Rs558 billion against the target of Rs900 billion. Under the IMF programme, Pakistan is committed to gradually converting the primary deficit into a surplus. For this fiscal year, the government is bound to convert the primary deficit – calculated by excluding interest payments – into a surplus of 0.2% of GDP, down from last fiscal year’s 3.4%.
This will require massive efforts to enhance tax revenue and cut non-interest expenditures.
Figures showed that against the target of Rs930 billion primary federal budget deficit, the actual deficit came in at Rs2.3 trillion.
Despite a quite healthy growth in tax collection by the Federal Board of Revenue (FBR), the gross revenue receipts of the government remained below the target by Rs580 billion.
The FBR got Rs6.14 trillion in taxes, surpassing its original target by Rs314 billion. But non-tax revenue slipped below Rs1.2 trillion against the annual target of Rs2.1 trillion. The main reason behind missing the non-tax revenue goal was an unrealistic petroleum levy target of Rs610 billion.
As a result, the total gross federal revenue receipts amounted to Rs7.3 trillion, which was Rs580 billion less than the target. In terms of the size of national economy, the gross receipts were equal to only 11%.
The federal government’s total net income after transferring provincial shares stood at just Rs3.8 trillion, lower by Rs760 billion from the annual target.
The federal government transferred Rs3.6 trillion to provinces as their share in federal taxes, which was slightly better than the budgeted amount due to higher collections by the FBR.
After incorporating the cash surplus of over Rs350 billion achieved by the provincial governments, the overall deficit of the country stood at Rs5.1 trillion, or 7.7% of GDP.
Published in The Express Tribune, August 14th, 2022.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.
COMMENTS
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ