Budget 2023-24: Debt servicing likely to outstrip net federal receipts

ISLAMABAD: Pakistan’s net federal receipts will be insufficient to meet the largest expenditure of debt servicing in the upcoming budget for 2023-24 and will show a deficit of over Rs one trillion. Pakistan’s expenditure revolves around 3 Ds, including debt servicing, defence and development. The budget makers are just finding it hard to undertake the number-crunching exercise on the papers. Similarly, the Budget Strategy Paper (BSP), which is a requirement under Pakistan Financial Management Act to present the paper by April 15 each financial year, could not be approved by the cabinet till now.

However, if the FBR’s tax collection for the next budget, envisaged at Rs 9.2 trillion, is somehow achieved, then the provinces’ share will be provided according to the NFC share of 57.5 percent, which comes to Rs 5.2 trillion and thereby the net federal receipts will come close to Rs4 trillion. On the contrary, if the federal government envisages a non-tax revenue target of Rs2 to Rs 2.5 trillion in the budget, the net revenue receipts will be in the proximity of Rs6.5 trillion. The debt servicing requirement is estimated to go up to Rs7.5 trillion in the coming budget in the wake of the SBP policy rate of 21 percent. Keeping in view of the higher inflation pressures, it can be easily assumed that the policy rate will not come down anytime soon. The government has already envisaged the average CPI-based inflation at 21 percent for budget 2023-24.

There are indications that the debt servicing requirement will exceed by Rs1 trillion at least keeping in view the net federal receipts. Against this backdrop, all other expenditures, including defence, development, running of the government, payment of salaries, pensions, subsidies and grants will be met through borrowed money. This kind of budget will be unsustainable for Pakistan, leaving no room for complacency even with IMF or without IMF. What will be the outcome of this fiscal situation? It clearly illustrates that the government will have to borrow to meet the requirements of all expenditure heads, further ballooning the debt.

This leaves us with no option but to drastically reform the revenue mobilization efforts and rationalise expenditures by undertaking reforms on pensions, abolishing federal ministries, which are needless after the 18th Amendment and other critical steps. Secondly, Pakistan needs to restructure its domestic debt, otherwise it will eat away all net revenue receipts in years to come. When this scribe contacted Dr Khaqan Najeeb, former Adviser to the Ministry of Finance, he said Pakistan’s budget is in serious distress and in need of serious repair. A look at the budget of FY-23 tells us that Pakistan’s net federal receipts with the federal government will not be sufficient to even pay for the markup, which has risen from the budgeted amount of Rs3,900 billion to Rs5,300 billion. Unfortunately, all other expenditures would have to be borne by taking domestic and foreign loans. He explained the same fact would become even larger as the markup payment for the budget FY-24 would be much bigger, considering the 21 percent policy rate. The borrowing needs would go even higher without meaningful expenditure and tax reforms, Dr Najeeb concluded.