Pakistan’s debt falls to 84.7pc of GDP: IMF

Updated December 28, 2019

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A recently published report on Pakistan by IMF said this decline in debts was mainly driven by the government’s smart performance in reducing expenditures, registering primary budget surplus and increasing tax and non-tax revenues during the first five months of this fiscal year. — Reuters/File
A recently published report on Pakistan by IMF said this decline in debts was mainly driven by the government’s smart performance in reducing expenditures, registering primary budget surplus and increasing tax and non-tax revenues during the first five months of this fiscal year. — Reuters/File

ISLAMABAD: Pakistan’s general government debt (including guarantees and the International Monetary Fund borrowing) declined to 84.7 per cent of GDP, from 88pc.

A recently published report on Pakistan by IMF said this decline in debts was mainly driven by the government’s smart performance in reducing expenditures, registering primary budget surplus and increasing tax and non-tax revenues during the first five months of this fiscal year.

“In the first quarter of 2019-20, budget execution by the incumbent government improved considerably, registering a primary surplus of 0.6pc of GDP and an overall deficit of 0.6pc – about 1pc of GDP better than programmed,” the report added.

It said the over-performance was driven by stronger than expected non-tax revenues, accompanied by double-digit growth in tax revenue net of refunds.

At the same time, due to import compression, customs receipts and other external sector-related taxes have suffered (up only 6pc year-on-year), the report said, adding that spending, including by the provinces, has remained prudent.

However, the document observed that in FY19, the budget registered a primary deficit of 3.5pc of GDP and an overall deficit of 8.9pc, against its target of 1.8pc and 7pc, respectively.

Revenue collection at the federal level came in at 2pc of GDP, lower than expected, while total expenditures and provincial fiscal balances were in line with projections, it added. Around three-fourth of the revenue shortfall were due to one-off factors, which are not expected to carry over into FY20.

In particular, delays in renewing telecom licences, a temporary delay in the sale of state assets, and weaker than expected amnesty proceeds contributed around 1pc of GDP, while a shortfall in the transfer of State Bank profits to the budget, stemming from losses related to the exchange rate depreciation in late FY19 added an additional 0.5pc of GDP.

As a consequence of the fiscal slippages and the exchange rate depreciation, but also the government’s decision to increase cash deposits considerably to provide a financing cushion against potentially unfavourable market conditions, government debt (including guarantees and IMF borrowing) rose to 88pc of GDP.

With respect to government’s performance in revenue collection, the report observed that with 34pc nominal growth, compared to 1QFY19, total revenue over-performed the programmed projections by 0.2pc of GDP.

On account of tax policy measures implemented at the beginning of FY20, the domestic component of tax revenue collected by the FBR, recorded robust growth of 25pc.

Growth was particularly strong in sales and direct taxes, where most measures were targeted (including removal of tax exemptions, zero and reduced rates). At the same time, taxes collected at the import stage were impacted by substantial import compression, with a decline in all revenue categories except of sales tax.

Given that more than 40pc of total tax revenue in Pakistan is collected at the import stage, this shortfall had a notable impact on overall tax revenue performance 0.2pc of GDP lower than programmed.

One-off tax revenue inflows (around Rs30bn) also contributed to the overall result and are related to tax advances and tax amnesty receipts that were not collected at the end of FY19 but were realised in the first quarter of 2019-20 instead. Tax revenues collected at provincial level were also strong, increasing by 18pc.

Non-tax revenues almost tripled in first quarter, the report added.

Published in Dawn, December 28th, 2019