ISLAMABAD: With expenditures overshooting for interest payments, vaccines and subsidies in 2021-22, the Ministry of Finance on Tuesday highlighted a series of challenges to growth prospects including international commodity prices and global economic slowdown, leading to inflationary pressures over the remaining period of the current fiscal year.

This is the crux of the Mid-Year Budget Review 2021-22 submitted to the National Assembly as required under section 34(1) of the Public Finance Management Act 2019 before it was dissolved in controversial circumstances.

The report was released on Tuesday. With a large current account deficit at $9.1 billion (5.7 per cent of GDP) in the first half (July–December 2021) of the year, the mid-year review reported massive slippages on account of non-tax revenues, particularly because of lower petroleum levy and gas infrastructure development cess (GIDC).

As a consequence, the finance ministry confirmed significant cuts to the public sector development programme (PSDP).

Rising current expenditure may lead to major cut in PSDP

“The increase in current expenditure is expected due to rising interest payments, Covid-related spending, energy subsidies, social safety net expenditures and running civil governments,” noted the review, adding that “adjustments are, however, required to be made in PSDP allocations due to higher than estimated recurrent expenditure”.

The ministry said the trend of core macroeconomic indicators provided an optimistic scenario for the growth in FY22 with the expectation that it will remain above the target growth rate of 4.8pc and will maintain its momentum in the medium-term.

“However, there are certain challenges which may impact the growth prospects such as increasing trend in global oil and food prices, which may affect domestic inflation, widening current account deficit due to constantly growing import volume of energy and non-energy commodities”. New Covid-19 variants were also listed a potential downside risks for global growth and its spillover impact may bring further challenges to Pakistan’s economy.

The overall mid-year fiscal indicators have shown encouraging results as considerable growth in net revenue and effective expenditure control measures have helped in containing the overall fiscal deficit to 2.1pc of the GDP. A primary surplus at 0.1pc of GDP has been achieved. The federal government achieved a 9pc increase in the net revenue receipts during the first half of the current fiscal year in comparison with the same period last fiscal year.

The 19pc increase in the total expenditure during this period was primarily due to Covid vaccines expenditures and energy subsidies. The fiscal indicators showed a marked difference because of the change in the GDP base year. At the time of budget approval in June 2021, GDP (market price) for FY22 was estimated at Rs53,867bn.

Published in Dawn, April 6th, 2022