ISLAMABAD: Pakistan’s fiscal deficit crossed 2.3 per cent of gross domestic product (GDP) in the first half of this fiscal year — the highest in three years — mainly because of an almost 64pc surge in markup payments over the last fiscal year despite caretakers’ tight control over other expenditures.

The consolidated budget deficit, the gap between income and expenditure of the federation, in the comparable period a year ago (2022-23) and a year earlier (2021-22) remained unchanged at 2pc of GDP.

However, the primary balance, the difference in revenues and expenditure excluding interest payments, improved to 1.7pc of GDP against 1.1pc in the same period last year and 0.1pc a year earlier.

This is despite the fact that citizens paid record taxes during the year, as evidenced by the petroleum levy, a massive surge in gas prices, and a 162pc jump in State Bank of Pakistan profits accrued through a record 22pc interest rate, to name a few.

Primary balance improves to 1.7pc of GDP against 1.1pc a year ago

The tax revenue that forms part of the divisible pool with provinces increased by about 30pc in absolute terms or 0.2pc of GDP to 4.6pc while non-tax revenue — 100pc going into the Centre’s pocket — went up by 109pc or 0.8pc to 1.9pc of GDP.

No wonder, then, the overall revenue collection increased by almost one percentage point to 6.5pc of GDP in the first six months (July-December) of the current fiscal year when compared to 5.6pc last year and 5.9pc in FY2021-22.

Data showed that total revenue increased by 46pc to Rs6.854 trillion this year, but FBR tax revenues increased by 30pc to Rs4.47tr. The non-tax revenue, on the other hand, jumped by 109pc in half year to Rs2.02tr.

The icing on the cake was Rs473bn collection from petroleum levy on oil products, up 596pc over just Rs68bn last year. Another windfall gain came in the shape of Rs972bn surplus profit from the SBP, up 162pc over Rs371bn last year.

According to fiscal operations data released by the Ministry of Finance on Monday, the fiscal deficit in absolute terms amounted to Rs2.41tr in the first half of the current year, which was 43pc higher than the same period of last year. The primary surplus, however, improved to Rs1.8 trillion this year, showing an increase of 104pc over the last year.

The surge in markup payments, both in absolute numbers and as a percentage of GDP, was huge as it increased by 64pc to Rs4.22tr by the end of December 2023 compared to Rs2.57tr a year ago.

It increased to 4pc of GDP by end-December 2023 from 3pc of GDP at end-December 2022 and around 2.2pc on Dec 31, 2021, meaning that debt servicing cost almost doubled in two years as a percentage of GDP or by Rs2.77tr since January 2022 when it stood at Rs1.453tr.

The finance ministry reported that defence expenditure posted an upward journey in absolute terms by almost 20pc to Rs758bn in the first six months of the current year against Rs639bn of last year, but it actually declined slightly to 0.7pc of GDP against 0.8pc last year.

The massive surge in markup payments coupled with defence expenses left little space for the government to spend on improvements in the living standards of the people in the form of infrastructure development and social sector spending.

Unfortunately, in fact, this led to a cutback on the Public Sector Development Programme (PSDP). This is evident from the fact that development expenditure dropped massively to just 0.6pc of GDP in the first half of the current year against 2pc and 2.1pc in the comparable periods of the last two years.

Even in absolute numbers, the federal PSDP flattened to just Rs130bn in six months of the current year against Rs136bn last year and about Rs200bn a year earlier, showing a consistent decline in development spending against a gradual increase in taxes on the one hand and markup payments on the other. It may be kept in mind that the PSDP spending in the first half of FY19 stood at Rs328bn and Rs520bn in FY18.

On the positive side, the share of direct taxes improved to Rs2.15tr in the first half, up 41pc over the last year’s Rs1.525tr.

As a result, the collection from direct taxes improved to 2pc of GDP this year when compared to 1.8pc of last year’s GDP.

Published in Dawn, January 30th, 2024

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