Islamabad:
An extraordinary surge in non-tax revenue helped the government narrow the fiscal deficit to just Rs900 billion in the first four months of the current fiscal year, despite a rise in interest payments to a staggering Rs2.3 trillion.
Higher non-tax revenue, which multiplied to Rs 1.6 trillion, has also camouflaged the poor fiscal performance of provinces that are seemingly on a spending spree ahead of the general elections.
Government sources said the central bank posted nearly Rs 1 trillion in profit in October, taking the Centre’s non-tax revenue to Rs 1.6 trillion in the first four months. Non-tax revenue was equal to 54% of the annual target after the federal government decided to use the SBP’s profits in advance. By the end of September, the government’s non-tax revenue was just Rs 453 billion, according to Finance Ministry documents.
In the July-October period of this fiscal year, interest payments rose to Rs 2.3 trillion, or equal to nearly a third of annual disbursements, according to government sources. They added that higher debt servicing costs have, for now, been offset by a profit payout of close to Rs1 trillion from the State Bank of Pakistan.
The central bank’s timely injection helped narrow the federal budget deficit to Rs900 billion, or 0.9% of the economy’s size. But its sustainability remains questionable. Interest payments were equal to 82% of the federal government’s net income of Rs2.8 trillion. Although the Finance Ministry has earmarked Rs 7.3 trillion for interest payments in the budget, the International Monetary Fund (IMF) has already revised upwards its debt servicing forecast to Rs 8.63 trillion.
The SBP-dominated Monetary Policy Committee (MPC) is scheduled to meet on Tuesday to set the policy rate for the next two months. The current 22% interest rate eats up most of the tax revenue and is the root cause of the record budget deficit.
The IMF sent yet another technical mission to Pakistan to oversee the government’s budget processes. The mission held a preliminary meeting with the interim finance minister on Wednesday.
SBP’s bullet payment was roughly equal to about 90% of the annual profit target set by the finance ministry. The federal government also collected Rs 340 billion due to oil levy in four months. The government has already agreed to revise upwards its annual oil levy collection target to Rs 918 billion during the recent revision talks with the IMF.
The FBR’s tax collection stood at Rs 2.75 trillion in four months – equivalent to 30% of its annual target. Gross federal revenue collections stood at Rs 4.3 trillion on the back of SBP payments. However, the total net income of the federal government, after the transfer of provincial shares, came to Rs 2.8 trillion.
In the first four months, the federal government’s total expenditure increased by over Rs 3.7 trillion, mainly due to interest payments which accounted for 62% of total expenditure. Current expenditure amounted to over Rs 3.6 trillion in four months. Defense spending was in line with the annual budget at Rs 472 billion.
Development spending also saw a significant cut, slowing to just Rs 76 billion – or 8% of the annual target. The fiscal performance of provincial governments remained very poor. Cumulatively, they saved just Rs 40 billion in four months against the annual commitment of Rs 600 billion.
Reading: The economy actually “contracted” in the last fiscal
The IMF has projected Pakistan’s budget deficit at 7.6% of the size of its economy, or a record Rs8.2 trillion, which was well above the official target and would keep the government dependent on lenders to stay afloat in life. The 7.6% deficit means Pakistan will need to borrow Rs 1.3 trillion more than it planned for in June this year.
The IMF praised the government’s fiscal performance during last month’s review talks, although it did not accept the official budget deficit figures reported by the finance ministry. However, the finance ministry is having difficulty getting a council date from the IMF.
Neither the finance ministry nor the IMF country representative responded to questions about the delay of the board meeting. The finance ministry spokesman also did not respond to a question about whether the first-quarter budget figures have been revised in light of IMF objections raised by the global lender last month.
Pakistan had hoped to get an IMF board meeting date in December to complete the first review amid a decline in its official foreign reserves that fell again to $7 billion last week. Board approval of the first assessment will unlock the $700 million loan tranche. The IMF has published its board calendar until December 15, and the country is not yet on the agenda.
The Associated Press of Pakistan (APP) reported on Thursday that Pakistan’s ambassador to the US Masood Khan hosted the officials of the IMF and other financial institutions. APP said Athanasios Arvanitis, Deputy Director of the IMF’s Middle East and Central Asia Department, expressed hope that the elections in Pakistan would usher in a new beginning of reforms that the country needed to address its structural issues.
The Election Commission of Pakistan is expected to announce the election schedule on February 8, which may clear the air.
The IMF’s chief of mission to Pakistan, Nathan Porter, also reportedly welcomed the recent staff-level agreement with Pakistan on a $3 billion stand-by arrangement, saying the current government’s policies reflect its commitment to stabilizing its economy. country. Porter also expressed appreciation for the cooperation and policies followed by SBP to ensure fiscal stability in the country, according to APP.
Published in The Express Tribune, December 8u2023.
Like Businesses on Facebook, follow @TribuneBiz on Twitter to stay updated and join the conversation.
a href=”https://tribune.com.pk/story/2449302/revenue-spike-helps-contain-deficit”>Source link
