KARACHI: Rising debt stock and depreciation of local currency were the main contributors to a sharp increase in federal current expenditure in the first half of FY18.

The State Bank of Pakistan’s second quarterly report said the federal current expenditures grew by 12.4 per cent as compared to 2.6pc recorded in corresponding period of last year.

The updated information available in another SBP report shows that total domestic debt of the federal government till February 2018 was Rs15.948 trillion. At the end of last fiscal on June 30, 2017, the stock of debt stood at Rs14.84tr. The report primarily attributed this increase to higher interest payments, both on domestic and external debt.

“Increase in interest payments despite continuation of low interest rate environment, in fact, reflects the impact of rising debt stock as well as depreciation of the rupee against the dollar,” said the report. Moreover, spending on defence and public order and safety also rose sharply during first half of FY18 compared to last year.

“The development spending continued to maintain its upward momentum, rising by 23.4pc during first half FY18 as against 16.7pc last year,” continued the report.

“The spending consideration at the federal level was more tilted towards infrastructure and energy sectors, especially delivering on its commitments under CPEC,” it stated, adding that this was largely due to a 25.4pc increase in releases under Public Sector Development Programme.

The report also revealed that the provinces posted a surplus of Rs203.9 billion – about 59pc of the target of Rs347.3bn for the year – during H1FY18. The major contribution to this surplus came from Punjab, followed by Sindh and Balochistan while the figure from KP almost halved in H1-FY18 compared to last year. Punjab provided Rs69.5bn, Sindh Rs60.7bn, KPK Rs21bn and Balochistan Rs52.7bn in surplus amounts.

“The higher provincial surplus was a result of a considerable increase in the provincial revenue,” said the report.

The total provincial revenue grew by 28.2pc during H1FY18 as compared to a meagre 1.3pc growth reported last year. This improvement is largely caused by increase in federal transfers, bolstered by an impressive growth in Federal Bureau of Revenue’s tax collection and provinces’ own tax revenue, said the report. The provincial revenue continued to build on expanding coverage of general sales tax on services, increasing by 33pc during H1FY18 versus 17.9pc growth last year.

The report said the improved economic activity had a spillover effect on provincial revenue collection as well. Besides, in proceeds from sales tax on services, provinces saw an encouraging growth in excise and stamp duties, followed by property and motor vehicle taxes.

Published in Dawn, April 8th, 2018