Government’s spending increases to Rs1.1 trillion
Even before Pakistan was hit by floods and despite having to cut back on some necessary expenses, the federal government’s current spending soared to around Rs 1.1 trillion in two months, showing that the budget was no longer relevant.
Alarmingly, according to sources in the Ministry of Finance, almost 71% of the current expenses during the months of July and August of the current fiscal year were accounted for by only two heads: loan interest payments and defence.
Very little was left over to invest in the welfare and development of the nation as a result.
When the reconciled data becomes available at the end of the quarter, the fiscal statistics will become preliminary and subject to change (July-September). However, Pakistan has informed the International Monetary Fund that it will take rapid corrective steps to implement the contingency revenue measures if monthly fiscal operations statistics show that spending is above the first quarter and following target.
In front of the IMF, the administration acknowledged that “the cutting of current spending is ambitious”.
The first trend suggests that Pakistan would not have been able to meet the primary budget surplus objective of Rs153 billion that the government and IMF had established.
According to preliminary information gathered by the Ministry of Finance, the current expenses for the first two months of the fiscal year totaled Rs1.09 trillion, or 12.5% of the yearly allocations. Additionally, current spending was Rs43 billion, or 4.1%, higher than it was in the prior fiscal year.
Over Rs580 billion was spent on just debt payment for previously secured loans, which is a sizable portion. The amount spent on debt was Rs156 billion, which is an increase of 37% from the prior fiscal year. It was a worrying trend that shows Pakistan can no longer spend money on anything other than paying off its debt or paying the salaries of its military personnel and civilian workers.
Another sum of Rs 191 billion, or 17% higher than the prior fiscal year, was spent on defence.
According to the sources, the total amount spent on debt and defence came to Rs773 billion, or 71% of current expenses. Spending of Rs. 773 billion was 46%, or Rs. 245 billion, more than the federal government’s net income for the months of July and August.
In contrast, the federal government only spent Rs28 billion on development, which is Rs35 billion or 56% less than the prior fiscal year.
Due to severe budget cuts to development, the federal government’s overall spending during the current fiscal year increased to Rs1.111 trillion, somewhat more than the comparable time.
The pattern, according to Finance Minister Miftah Ismail, flipped this month, and as of September 13, total expenses were Rs. 226 billion lower than during the same time the year before.
The government budget deficit for the months of July and August is tentatively anticipated to be around Rs584 billion, or roughly Rs50 billion less than the previous fiscal year, as a result of the squeeze on development spending. The largest saving of Rs35 billion, out of this Rs50 billion adjustment, comes from the development side.
The primary deficit for the federal government was only Rs 2 billion, but the federal budget deficit was equal to 0.7% of the GDP.
Other expenses were drastically cut, going from Rs. 453 billion to Rs. 312 billion in the first two months, a decrease of nearly Rs. 140 billion. However, the savings obtained in this area were lost because debt servicing costs were higher and remained Rs157 billion more than in the previous fiscal year.
The government has even ceased giving newspapers to the public relations departments in order to conserve money, yet despite these difficult economic times, it has been growing the cabinet, which now numbers 70. The Pakistan Broadcasting Corporation is having trouble paying pensions to its retired employees as a result of the Ministry of Finance’s unrealistic annual budget allotment.
With immediate effect, the Federal Excise Duty on Tier I and Tier II cigarettes would be raised by at least Rs 2 per stick, and there will be further streamlining of GST exclusions, including those for sugary drinks and other arbitrary exemptions that favour exporters.
The federal budget deficit soared to nearly Rs5.6 trillion in the most recent fiscal year, a rise of 51% from the year before. The federal government’s budget deficit of Rs5.61 trillion was the largest ever recorded in the history of the country.
Pakistan has agreed to progressively turn its primary deficit into a surplus as part of the IMF agreement. The government is required to turn the primary deficit for this fiscal year—calculated after deducting interest payments—into a surplus of 0.2% of GDP, down from the 3.6% for the previous fiscal year.
However, according to the World Bank’s most recent assessment, the nation may once again experience a primary deficit of 2.8% of GDP in the current fiscal year as a result of floods.
The FBR continued to collect Rs947 billion in taxes over the first two months, an increase of Rs91 billion or 11%. The non-tax receipts totaled Rs 111 billion, an increase of Rs 36 billion or 48% due to higher fuel taxes.
Government’s spending increases to Rs1.1 trillion
However, after paying the provinces’ portion, the net federal income of Rs 528 billion were not even enough to cover debt payments and defence spending. The amount that the federal government transferred to the provinces as their share of federal taxes was Rs531 billion, a 12.3% increase from the previous year.
The overall deficit of the nation was Rs446 billion, or 0.6% of GDP, once the provincial governments’ cash surplus of over Rs138 billion was taken into account. The primary balance as a whole was Rs136 billion, or roughly 0.2% of the GDP. Compared to the previous fiscal year, the provincial cash surplus was Rs34 billion lower.
Until the conclusion of the fiscal year or until the IMF revises the fiscal framework in light of the devastation caused by the flood, the government must hold onto this 0.2% of GDP primary surplus.
