ISLAMABAD: Highlighting certain risks to fiscal sustainability, the federal government has reported its half-year (July-December) fiscal deficit at 3.1 per cent of GDP, or the highest-ever figure of Rs1.393 trillion in absolute terms.

In its mid-year Budget Review Report submitted to the parliament as required under the Public Finance Act, 2019, the Ministry of Finance on Monday claimed credit for higher revenues, controlled expenditures amid fiscal consolidation measures but conceded that there were “certain risks to fiscal sustainability”.

Going forward, the fiscal position would depend on the domestic and international evolution of the Covid-19 pandemic, the ministry said, adding that faster-than-anticipated economic revival was also likely to increase demand for inputs.

During the first half of the current financial year, an amount of Rs116 billion was provided to combat the pandemic from the revalidated Economic Stimulus Package, including purchase of vaccines worth Rs25bn. Moreover, Rs64bn was utilised under the Ehsaas Programme to provide relief to vulnerable segments of society.

Finance ministry claims credit for higher revenues and controlled expenditures, but sees ‘certain risks to fiscal sustainability’

The finance ministry said the government had adopted a facilitative policy of releasing funds to meet the expenditures, both recurrent and development, in accordance with its spending priorities. Nevertheless, the half-year fiscal position indicates that factors will remain on track to meet the annual fiscal targets.

The country’s overall fiscal deficit was, however, brought down by about Rs255bn cash surplus provided by the four provinces. The overall primary balance (excluding debt servicing and interest payments) was also reported at 0.7pc (surplus) against a full year deficit limit of 0.5pc.

The report said the continuity in fiscal consolidation, stable exchange rate, improved current account and better financial management presented a promising economic outlook. The current account balance continued to improve, posting a surplus of $1.1bn (0.8pc of the GDP) during the first half of the year, it said.

Tax collection grew by 5.6pc in first half on a Year-on-Year (YOY) basis despite an upsurge of Covid-19 and the Federal Board of Revenue achieved about 99pc of its half year target. Non-tax revenue remained at par with the previous year collection in spite of reduction in State Bank of Pakistan profits and non-realisation of fees from cellular license renewals. Current expenditure was controlled through austerity measures and strict financial discipline.

The government said its borrowing operations remained in line with the Medium-Term Debt Management Strategy (MTDS FY20-23) and just like last year, domestic borrowing came entirely from the financial markets and about Rs285bn borrowing from the SBP was retired. Also, the borrowing to fund the fiscal deficit was made through longer-term debt, while short-term debt (T-bills) reduced by around Rs579bn.

The major sources of non-tax revenue for the federal government during this period are surplus profit of the SBP and Petroleum Levy which showed more than 110pc growth. As such, the government achieved 54pc of budgeted targets despite the adverse impact of the Covid-19 pandemic on economic activity.

The ministry said the expenditure on running of civil government was reduced to 40pc of the allocation by restricting supplementary grants and implementing austerity measures. Additional funds have only been approved as a supplementary grant which remained unutilised under the Economic Stimulus Package of last financial year to extend the relief measures.

All additional needs of the ministries and divisions had been met through Technical Supplementary Grants from within the allocated budget, with primary reliance on re-appropriation of funds.

The Rs1.475tr worth major chunk of current expenditure was spent on debt servicing, out of which, domestic interest payments amounted to Rs1.357tr and external interest payments amounted to Rs118bn.

The ministry also reported that Rs232bn had been utilised against the Public Sector Development Programme’s allocation of Rs650 billion up to December last year.

Published in Dawn, March 2nd, 2021