Debt service increased by 74% in the first five months of the 24th year

• Surplus revenue generated by the provinces is also declining.
• Increasing surcharge payments is a challenge for the government.
• The SBP’s Monetary Policy Committee is scheduled to meet next week.

ISLAMABAD: Amid high policy rates, Pakistan’s debt servicing in the form of capital accruals and outstanding loans increased by 74% in the first five months (July-November) of the current fiscal year compared to the same period of the previous fiscal year , have been reported The news on Thursday.

Moreover, another challenge that has arisen on the fiscal front is the reduction of surplus revenue generated by the provinces. Revenue stood at Rs 107.9 billion in the first five months of the current financial year against Rs 202.5 billion generated in the same period of the previous financial year.

The main challenge facing the government is rising surcharge payments in response to high policy rates which have led to a significant increase in current expenditure. However, the government is making every effort to control non-incremental spending, as evidenced by the increase in the primary surplus during July 24-Nov.

The SBP’s Monetary Policy Committee is scheduled to meet next week and if it hikes the rate, debt servicing will eat up more revenue in the coming months and create difficulties for the Finance Ministry.

During July-November 2024, total spending rose 43% to Rs 4,831.0 billion against Rs 3,367.4 billion last year. Current expenditure rose by 46% mainly due to a significant increase in surcharge payments which rose by 74% in the first five months of the current financial year, while non-surcharge expenditure increased by just 20% due to government spending cuts.

The overall fiscal deficit stood at 1.3% of Gross Domestic Product (GDP) equivalent to Rs 1,375.4 billion in July-November CFY2024 against Rs 1,168.6 billion (1.4% of GDP) in the same period of previous financial year. However, the overall primary balance remained in surplus at Rs 1,542.1 billion in the first five months of the current financial year against Rs 511 billion in the same period of the previous financial year.

The government had agreed with the IMF to limit the primary surplus to Rs 397.2 billion or 0.4% of GDP for the current financial year.

The fiscal deficit narrowed to 1.3% of GDP (Rs 1,375.4 billion) in July-November 2024 from 1.4% of GDP (Rs 1,168.6 billion) last year. The overall budget deficit for 2024 is budgeted at 6.5% of GDP. The primary surplus improved due to moderate growth in non-incremental spending. It showed a surplus of Rs 1,542.1 billion (1.5 % of GDP) during July-November FY2024 against a surplus of Rs 511.0 billion (0.6 % of GDP) last year. During July-November FY2024, net receipts improved by 68% to Rs 3,347.7 billion as against Rs 1,996.5 billion last year. This performance is largely attributed to a sharp increase in non-tax collection by 114% (Rs 1,757.2 billion against Rs 822.4 billion last year) and tax collection by 30% (Rs 3,484.7 billion against Rs 2,688 .4 billion last year).

FBR tax collection rose 30.3% to Rs 4,469 billion during July-December 2024 against Rs 3,429 billion last year. During the period, the FBR collected more than the set target of Rs 4,425 billion, thereby surpassing Rs 44 billion. Revenue performance shows that tax policy and administrative measures are paying off in terms of continuous improvement in revenue collection.

Originally published on The news