KARACHI: The government’s policy to keep interest rates low seems to have started to bite. The low interest rate era has led to a big cut in non-tax revenue while tax revenue also remained short of the target during this fiscal year.

According to the latest report of the State Bank of Pakistan (SBP), the government lost revenues on many fronts. The private sector, despite doing a better job, failed to accelerate growth rate to the extent that it could yield higher revenue for the government. The shortfall in tax revenue during the first 10 months of the current fiscal year (i.e. July to April) stood at Rs150 billion.

The biggest cut was noted in the SBP revenue: from a peak of Rs399bn profits in 2014-15, it fell to Rs228bn in 2015-16 and then just Rs88bn in the first half of the current fiscal year.

Since the policy rate is 5.75 per cent and there is no chance of an increase due to low inflation, the government is expected to receive around Rs160bn to Rs170bn in profits from the State Bank during this fiscal year.

Similarly, other sectors which collectively yielded a profit of Rs57.7bn in 2015-16 managed to eke out Rs8.9bn in the six months through December 2016.

The dividends also fell and the government received Rs12.2bn in July-December 2016 compared to Rs88.5bn in the entire 2015-16.

Under the head of non-tax revenue, the government received Rs4.6bn in July-December 2016 from the defence sector compared to Rs107bn in 2015-16 and Rs157bn in 2014-15. The non-tax revenue from Pakistan Telecom Authority/Post Office was just Rs600 million compared to Rs34.3bn in FY16.

The overall non-tax revenue during the first six months of the current fiscal year was equivalent to around 30 per cent of the total non-tax revenue collected in 2015-16.

The government policymakers were following a growth-led strategy for higher revenue with low interest rate. But the impact was not in favour of the government as neither the private sector produced extra potential for growth with cheaper money nor could the tax collection improve.

The only winner was the equity market which earned high profits and became one of the top markets of the world in 2016. Reports appearing in the media suggest that the government would further cut subsidies and withdraw some incentives for the exports-oriented industry in the next budget to increase cash flow.

Published in Dawn, May 7th, 2017