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Budget deficit rises to highest level in 28 years

Budget deficit rises to highest level in 28 years
August 28, 2019
ISLAMABAD (92 News) – Pakistan’s budget deficit rose to the highest level in 28 years – in the first year of Pakistan Tehreek-e-Insaf (PTI) government – budget deficit increased by 65 per cent rising to a record Rs3.45 trillion because of its sheer failure to enhance revenues and control expenditures. According to the details, the budget deficit rose to a record Rs3.45 trillion or 8.9% of the size of national economy, however, expenditures broke previous records while revenues were stagnant. The details of fiscal operations released by the ministry of finance on Tuesday put the country’s full year fiscal deficit at Rs3.445tr or 8.9pc of GDP — the highest since 1979-80 as per past Pakistan Economic Surveys. The deficit stood at Rs2.26tr or 6.6pc of GDP in the previous year. The troubling factor was a steep reduction in tax revenues, including that of the FBR, in terms of the size of national economy. Against preceding year’s revenues of 15.2% of GDP, the ratio slipped to just 12.7% at the end of first year of the PTI government. The FBR’s tax revenues that stood at 11.2% of GDP in last year of the PML-N government, dropped to 9.9% in the PTI’s first year. The main reason was the FBR’s failure to achieve its Rs4.4-trillion annual tax collection target. The FBR’s collection stood at Rs3.829 trillion – Rs13 billion less than the collection of the PML-N government. The government has committed to increase the FBR’s tax revenues to 13.1% of GDP in the current fiscal year under the IMF deal, but it now seems impossible without a mini-budget. Non-tax revenues, which stood at Rs630 billion in last year of the PML-N government, decreased to just Rs364 billion. The main reason was the surplus of only Rs12.5 billion showed by the State Bank of Pakistan as against Rs233 billion in the preceding year. The federal government’s total net income after transferring provincial shares stood at just Rs2 trillion – down from Rs2.5 trillion in the PML-N’s tenure. Total expenditures of the federal government stood at Rs5.6 trillion as against its net income of only Rs2 trillion after paying the share of provinces under the National Finance Commission award – showing a gap of Rs3.6 trillion. After incorporating the cash surplus of Rs138.8 billion achieved by the four provincial governments, the federal government borrowed Rs3.45 trillion to bridge the deficit, showed the finance ministry data. Total federal expenditures during the PML-N’s tenure were Rs4.7 trillion, which increased 19% or Rs895 billion in first year of the PTI government. The government tried to offset the shortfall in revenues and excessive current expenditures by massively scaling back core development and other development spending. Against the budgeted Public Sector Development Programme (PSDP) of Rs800 billion, the actual PSDP spending stood at only Rs561.7 billion. It was even less than the Rs661 billion in last year of the PML-N government. Due to the growing debt burden, the country spent Rs2.1 trillion on debt servicing in the last fiscal year, higher by Rs591 billion or 40% over the previous year. Against the preceding year’s current expenditures of Rs3.8 trillion, the actual current spending in the last fiscal year was Rs4.8 trillion – an increase of Rs1 trillion or 26.5% that belies PM Imran’s claim of cutting the expenditures. It was largely because of higher-than-budgeted debt servicing, mainly because of wrong policies of the central bank. Against a budget of Rs1.1 trillion, the stated military spending stood at Rs1.15 trillion.