Thursday April 18, 2024

Covid-19: Fiscal deficit shoots up to 8.6pc of GDP

By Mehtab Haider
February 07, 2021

ISLAMABAD: The government has admitted in its fiscal policy statement before Parliament that it breached its envisaged target under Fiscal Responsibility and Debt Limitation Act 2005 for reducing fiscal deficit and maintaining total public debt within prudent limits.

In its report submitted before Parliament in its recent session, the Ministry of Finance stated that the federal fiscal deficit excluding grants was recorded at Rs 3,601 billion or 8.6 percent of GDP during financial year 2019-20 thus remaining higher than the threshold prescribed in the Fiscal Responsibility and Debt Limitation Act 2005 2005. The government tried to explain that in the aftermath of COVID-19 pandemic the situation went out of control but this departure is temporary and the government took a number of steps to reverse the trend.

The policy statement conceded that the debt per capita is rising and now standing at Rs 175,000 on each Pakistani national. The government also conceded that it also could not achieve its target of decline in public debt to GDP ratio to 84 percent rather it rose to 87.2 percent of GDP in fiscal year 2019-20 after the outbreak of COVID-19 pandemic.

It further claimed that based on prudent economic policies of the government, debt to GDP ratio is projected to decline over the next few years. But the independent economists believe that its only wish-list of the incumbent regime as keeping in view low GDP growth and higher fiscal deficit it would be hard for the government to achieve reduction in debt to GDP ratio. Total public debt recorded at Rs 36.399 trillion till end June 2020, recorded an increase of Rs 3.691 trillion during the last fiscal.

The Debt Policy Statement did not mention total debt and liabilities (TPD &L) in its report to the Parliament which stands at Rs 44.8 trillion till end September 2020-21 against Rs 29 trillion on June 2018. Total external debt and liabilities stood at $113.8 billion on September 30, 2020 according to State Bank of Pakistan.

The Ministry of Finance has deliberately hidden these facts from its main debt policy statement for the end of 2020.

Domestic debt and stocks recorded at Rs 23.38 trillion. The external debt was recorded at $78 billion while external public debt climbed to $79.9 billion till end September 2020.

The outstanding guarantees stood at Rs 2,343 billion till end September 2020 against Rs 2, 344 billion on June 30, 2020. They were Rs 1,969 billion on June 30, 2019.

The volume of new guarantees issued during a financial year is also limited under Fiscal Responsibility and Debt Limitation Act at 2 percent of GDP. During the financial year 2019-20, the government issued new guarantees including rollovers amounting to Rs 342 billion or 0.8 percent of GDP.