• Fiscal deficit reaches unprecedented Rs1.7tr
• Provinces turn in Rs101bn cash surplus against Rs800bn

ISLAMABAD: Amid fiscal challenges, Pakistan’s tax-to-GDP ratio dropped further by 0.4pc in the first half (July-December) of the current fiscal year to 4.4pc from 4.8pc of the same period last year.

According to half-yearly data on fiscal operations released by the Ministry of Finance on Wednesday, the non-tax revenue remained unchanged at 1.1pc of GDP in the first half of the year and stood at Rs967bn, supported by a massive Rs378bn from the State Bank of Pakistan and a record Rs178bn of petroleum development levy on oil products.

In another highlight of the half-yearly fiscal operations, the four provinces came up with a cash surplus of just Rs101bn against a full-year target of Rs800bn committed to the International Monetary Fund (IMF).

This suggests that the annual cash surplus target was unlikely to be met over the remaining five months of the fiscal year as the current gap stood at almost Rs700bn.

The overall revenue to GDP ratio also declined by 0.3pc and stood at 5.6pc of GDP in the first half of the fiscal year when compared to 5.9pc of GDP during the same period last year.

As a result, a reasonable constraint on expenditures could hardly dent the half-yearly fiscal deficit that stood at 2pc of GDP i.e. almost the same position as during the same period of last fiscal year.

As a consequence, the half-yearly fiscal deficit reached close to Rs1.7 trillion — the highest ever.

This was even though total expenditure was restricted at 7.6pc of GDP in 1HFY23, down from 8pc of last year. In absolute terms, total expenditure amounted to Rs6.38tr by the end of December against Rs5.3tr in the same period of the previous year.

Defence expenditure remained unchanged at 0.8pc of GDP in the first six months this year but increase in absolute numbers to Rs639bn against Rs520bn of the previous year. On the other hand, the government could not control current expenditure which increased to 7.2pc of GDP in the first half of the year when compared to 7pc of GDP last year.

This was mainly because of an increase in debt servicing cost that increased to 3.1pc of GDP or (Rs2.57tr) in the first half of the year when compared to 2.2pc of GDP last year when the markup payments stood at Rs1.45tr in absolute numbers, showing an increase of 77pc.

Interestingly, the finance ministry’s data suggest that current expenditure in the first six months at Rs4.39tr was surprisingly higher than the total expenditure of Rs4.25tr which also includes about Rs176bn of development expenditure but then the finance ministry pitched an unexplained and massive statistical discrepancy of Rs320bn.

The record “statistical discrepancy” apparently shows the record of public money in a casual manner.

Therefore, the overall deficit including that of provinces thus increased to Rs1.78tr in the first half of the current fiscal year when compared to Rs1.85tr during the same period of the previous year.

However, the primary fiscal balance, after excluding interest payments, was reported at Rs889bn in six months or 1.1pc of GDP, significantly better than the previous year’s Rs81bn or 0.2pc of deficit.

Most of the fiscal deficit was financed through domestic borrowing that stood at Rs1.98tr including Rs1.58tr through non-banking instruments and Rs394bn bank borrowing.

Published in Dawn, February 9th, 2023

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