4pc of GDP: Budget deficit under PTI govt rises to Rs2.56tn

ISLAMABAD: Pakistan's overall budget deficit rose to Rs2.56 trillion or four percent of Gross Domestic Product (GDP) during the nine months of the current fiscal under the Pakistan Tehreek-e-Insaf led government.

According to the Ministry of Finance, the federal budget deficit ballooned to Rs3.1 trillion in the first nine months of the current fiscal year, but the provincial contribution of Rs0.6 trillion revenue surplus curtailed the overall deficit at Rs2.56 trillion.

Primary balance, which is calculated excluding mark-up payment, and considered sacrosanct by the International Monetary Fund, stood at Rs0.447 trillion in the nine months period. Earlier, the government had envisaged a surplus primary balance to the tune of Rs0.25 trillion for the whole fiscal year. However, it estimated that it might rise to Rs1.3 trillion by the end of June 2022.

Fears were expressed by the federal government that the overall budget deficit might escalate to Rs5.6 trillion till end June 2022 mainly because of unfunded subsidies, off book expenditures, inability of the provinces to generate desired revenue surplus, FBR’s expected shortfall and overrun in expenditures mainly because of increased debt servicing.

The overall budget deficit stood at Rs1.65 trillion or 3.6 percent of GDP in the same period of the last financial year. With the rebasing of national accounts, Pakistan’s GDP size has been estimated at Rs63.978 trillion for the current fiscal year.

This also raised the overall budget deficit to Rs2.56 trillion in the 9MFY22 against Rs1.65 trillion. So, the budget deficit in absolute figures went up by over Rs0.9 trillion in the ongoing fiscal year.

As per the forecast given by Minister for Finance Miftah Ismail, the budget deficit may witness a surge of more than Rs3 trillion just in the last three months of the current fiscal year.

Fiscal position of the federal government remains bleak, with gross revenue receipts at Rs5.36 trillion. Out of this, the federal government transferred Rs2.584 trillion to the provinces, so the net federal revenue receipts remain at Rs2.78 trillion. This could only meet debt servicing requirement of Rs2.1 trillion, leading the federal government to creditors for meeting defence expenditures.

With the federal government expenditures standing at Rs5.94 trillion, the only option was to get loans to meet all other expenses, including running of the civil government, payment of salaries, pension, subsidies and other obligations.

Data further showed that Rs5.87 trillion was the total revenue fetched. This included tax revenues of Rs4.8 trillion and non-tax revenue of Rs1.052 trillion in the first nine months of the current fiscal year. The break-up of total tax revenues shows that the federal government fetched Rs4.38 trillion and the provinces Rs0.438 trillion. Out of total non-tax revenues, the federal government’s collection stood at Rs0.958 trillion and provinces Rs0.94 trillion.

On the expenditure side, debt servicing continued to be the largest ticket item on this front as mark-up on domestic and foreign loans as well as principle amount payment consumed Rs2.1 trillion in the first nine months of the current fiscal.

Total booked expenditures stood at Rs8.43 trillion, out of which the current expenditures consumed a major chunk of Rs7.37 trillion. Mark-up payment consumed Rs2.1 trillion, while defence expenditures stood at Rs0.882 trillion.

Other major heads of expenditures included pension bill of Rs395 billion, running of civil government Rs318 billion, subsidies Rs575 billion, grants to provinces and others Rs70 billion, grants to others Rs990 billion, and Public Sector Development Programme (PSDP) Rs308 billion.

Dr Khaqan Najeeb, former adviser, Ministry of Finance, said the Budget 2021-22 was framed as a growth budget supported by higher development spending at Rs900 billion, financing initiatives of government like housing and ensuring expedited refunds.

"The need to stay in an IMF programme necessitated the budget to have primary surplus and bring fiscal deficit to 6.4 percent with increased revenues, but still cater for the vulnerable through income support. The first nine month’s performance must be gauged in the above perspective."

He explained that in the nine-month fiscal operations, the fiscal deficit remained contained during July-March FY22 at 4.0 percent of GDP at Rs1,862 billion compared to 3.6 percent of GDP or Rs1,652 billion during the same period last year.

The primary balance, however, posted a large deficit of Rs447 billion, a 0.7 percent of GDP or Rs447 as compared to a surplus 1.0 percent of GDP or Rs451 billion.

Dr Khaqan explained that the concerning bit was the increase in total expenditures in 9MFY22. Those were up a whopping 27 percent to Rs8,439 billion in 9MFY22 compared to Rs6,644 in the same period last year, highlighting the need for a serious reform effort on mark-up, pensions, subsidies and grants.

"This is necessary if we want to do fiscal consolidation without burdening the country with new tax measures." On the other hand, with only Rs308 billion spent in PSDP, the total FY22 outlay would be around Rs600 billion. In the wake of a vulnerable external position, curtailed spending might be helpful.

Revenue collection of FBR tax was showing a healthy growth of 29 percent in 9MFY22 but there were more upside risks on FBR’s ability to collect the Rs6.1 trillion for FY22 with slowing imports and zero GST on petroleum products, concluded Dr Khaqan.