KARACHI: The new government will spend Rs3,950 billion on debt servicing during the fiscal year 2022-23 (FY23) starting on July 1.

This huge outflow for debt servicing will account for 56.4pc of the total tax revenue to be collected in the new fiscal year. The government is expected to collect total tax revenue of Rs7,004bn in FY23.

The debt servicing will be 43.87pc of the total revenue of Rs9003bn while it will be 41.6pc of the total receipts of Rs9.5 trillion.

The gravity of the situation is clear from the figures provided in the budget documents released on Friday. The total development expenditure is about Rs1,023bn, which is much less than the size of debt servicing.

The debt accumulation has been increasing each year, and more borrowing is being done to meet the increasing expenditures. However, the biggest amount in the budget has been allocated for debt servicing, making it impossible for every government to reduce it and increase the development funds.

Although the revenues and the GDP size are on the rise, the benefits could not be realised in the public interest with more development funds.

The fiscal position is going to witness a further worsening scenario if the revenue challenges cannot be met through growth.

Economists predicted last year that the net revenue receipts could only meet the debt servicing bill during the current fiscal year ending June 30, and all remaining expenditure heads, including the country’s defence requirements, would be met through “borrowed” money.

The budget paper said the revenues, expenditures, assets and liabilities may be affected by unexpected events that are not included in the budget estimates. Additional government commitments, increased public debt, refinancing difficulties, or more significant fiscal events can result if any or all of these threats are realised, said the budget documents. Further, fiscal accounts are also vulnerable to changes in international macroeconomic conditions like commodity prices and the exchange rate.

With the existing pace of rupee’s fall and tightening monetary stance, the net revenue receipts could consume maximum revenue to pay only debt servicing bills in the current fiscal year. The rupee devaluation in FY22 was over 17pc against the dollar.

The budget paper did not mention the possibility of further devaluation of the rupee in the next fiscal year. However, in the absence of support through dollar inflows, the rupee looks to go through deep deprecation during the new fiscal also. It will increase the debts in terms of rupees.

The current budget seems to be an attempt to satisfy the IMF on key matters relating to revenue collection, subsidy reductions, and attainment of fiscal discipline. In contrast, last year’s was an expansionary budget that resulted in industry-led GDP growth of 5.97pc in FY22 and a huge increase in imports.

“A lot will depend on global commodity prices as they will determine the outlook on Pakistan’s macros and the ease with which government can achieve its budgetary targets in FY23,” said Mohammad Suhail, CEO of Topline Research.

Though the FY23 revenue collection target is set at Rs7tr (+17pc from FY22), it will be a challenge to achieve this target due to the economic slowdown and lower collection from oil sales.

“Note that tax collection (sales tax, duties, petroleum levy) from oil is roughly around 22pc of total tax collection.Currently, the government is not collecting any taxes from domestic consumers in spite of raising pump prices by 40pc recently,” he said.

Published in Dawn, June 11th, 2022

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