ISLAMABAD: Budget deficit is expected to exceed the target of 7.5 per cent of GDP and may go to 9.4pc of GDP owing to disruption in economic activity and increasing expenditure on public health and social safety net programs lessening the impact of Covid-19.

According to the Economic Survey 2019-20, achieving revenue targets of both tax and non-tax segments would be challenging due to disruption in economic activity. The full impact of Covid-19 on the Federal Bureau of Revenue collection is estimated at Rs899 billion for FY20.

In the pre-Covid period, the publication noted that fiscal deficit was brought down to 4pc of gross domestic product (GDP) during July-March FY20, as against 5.1pc in comparable period last year. Similarly, the primary balance posted a surplus of Rs194bn (0.5pc of GDP) as against a deficit of Rs463bn (1.2pc of GDP).

The improvement in the fiscal account is largely attributed to higher provincial surplus and a sharp rise in non-tax revenues. Overall, total revenues posted an impressive growth that outpaced the rise in expenditures.

Total revenues jumped by 30.9pc during July-March FY20 despite a slowdown in economic activity and import compression, as against just 0.04pc growth in the same period of FY19. In absolute terms, they stood at Rs4.689 trillion (11.2pc of GDP) this year, up from Rs3.583tr (9.4pc of GDP) in the same period of FY19.

Tax revenues rose to Rs3.594tr during 9MFY20, from Rs3.162tr, posting a jump of 13.7pc. Out of total tax collection, federal and provincial revenues grew by 13.9pc and 11.6pc, respectively during the period under review.

Within the total federal tax collection, the FBR accumulated Rs3.044tr (7.3pc of GDP) during July-March FY20, versus Rs2.704tr (7.1 pc of GDP) last year, representing a rise of 12.6pc.

Meanwhile, non-tax revenues also witnessed a strong recovery during July-March against a decline of 16.7pc in the comparable period of last year. In absolute terms, they amounted to Rs1.095tr, as opposed to Rs421.6bn and were primarily driven by a substantial rise in receipt of outstanding telecom license renewal fees and the SBP profit.

On the spending side, total expenditures grew by 15.8pc to Rs6.376tr (15.3pc of GDP) as compared with Rs5.506tr (14.5pc of GDP) a year ago. Of this, current expenditure surged by 16.9pc to Rs5.611tr in nine months versus Rs4.798tr in 9MFY19. This increase was primarily attributed to higher mark-up payments, grants for social spending and spending on social protection.

The grants payment soared by 50pc, followed by 28pc increase in mark-up on both domestic and foreign debt. The defence expenditures also edged up by 3.6pc to reach Rs802.4bn in the 9MFY20, as against Rs774.7bn in the same period last year. Similarly, subsidies amounted to Rs169.5bn, versus Rs96.8bn last year, registering a surge of 75pc with the bulk of them used on inter-Disco tariff differentials.

Development expenditure (excluding net lending) grew by 14.6pc to Rs751.7bn against Rs655.9bn in the same period last year. The sharp rise has been realized across both federal and provincial levels.

In particular, PSDP expenditures grew by 24.9pc during July-March, FY20 in contrast to a sharp decline observed during the same period last year. In absolute term, PSDP expenditures escalated to Rs722.5bn in the first nine months of the current fiscal year against Rs578.5bn last year.

In order to finance the fiscal deficit, domestic and external resources generated Rs1.003tr and Rs682.4 bn, respectively during July- March, FY20. Of domestic sources, financing from the bank stood at Rs601.8bn and from non-bank amounted to Rs402bn during the period under review.

All the four provinces generated a cumulative surplus of Rs394.1bn during July-March FY20 against the surplus of Rs291.6bn last year with Punjab and Balochistan contributing the most at Rs122.6bn and Rs106.3bn, respectively.

Published in Dawn, June 12th, 2020