Due to a substantial shortfall in tax collection and rise in interest payments, Pakistan’s budget deficit is likely to reach a record PKR 2.7 trillion in the current fiscal year worth as much as 7% of the gross domestic product (GDP).
Earlier, the government had revised the upper limit of the deficit to PKR 2.39 trillion, 6.3% of the GDP against a target of 5.1% for the current fiscal year. The deficit is expected to exceed PKR 2.24 trillion making it the highest ever recorded.
Since the deficit is expected to rise, it is safe to say that the two mini-budgets have failed, as a rise in interest payments and a shortfall in tax collection are equal contributors to this. The FBR recorded a shortfall of PKR 345 billion as it has collected PKR 2.995 trillion against a 10-month target of PKR 3.35 trillion and it is highly unlikely to collect PKR 4.398 billion – the target for the current financial year.
Whilst expenditures continue to rise, the interest payment has been revised by the government to PKR 2 trillion. This has been done by the finance ministry owing to the depreciation of the Rupee. When the budget for the current fiscal year was set, the government had set aside PKR 1.62 trillion for interest payments.
Solely due to the devaluation of the rupee, the government will have to pay an extra PKR 380 billion in interest payment; Dollar had reached a record PKR 142 last month against Pakistani Rupee as compared to PKR 115 in April last year.
For the defense budget, the expenditure is projected at PKR 1.68 trillion including defense services, pensions, SPD and special packages. To counter the rising deficit, the government has cut the development budget and hopes to cut another PKR 100 billion during the ongoing fiscal year from the Public Sector Development Programme (PSDP).
Late last year, the development budget was revised to PKR 675 billion compared to PKR 800 billion from the budgetary allocation by the government but now, it will release only PKR 575 billion for the development sector to the provinces.
During the first half (July-December) of the ongoing fiscal year, the budget deficit stood at PKR 1 trillion while the expenditures were PKR 3.36 trillion against revenue of PKR 2.33 trillion during the ongoing fiscal (FY2019) year. Despite the efforts made by the government, the deficit stood at 2.7% of the GDP, PKR 1.03 trillion according to the Ministry of Finance’s latest data.
Via The Nation