Home Editorial Highest-ever budget deficit of Rs3.45tr

Highest-ever budget deficit of Rs3.45tr

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Public finances worsened moreover with budget deficit rising to a record Rs3.45 trillion. The 8.9 percent deficit was the highest in the past eight years in terms of the size of national economy. It was the highest-ever deficit, which broke last year’s record of Rs2.3 trillion. The government’s pritorize to spend more in their last year in power compared with the first year which has historically remained the year of strengthening. In the year 2011-12 the budget deficit was equal to 8.8 percent of GDP. The past government closed its accounts at a budget deficit of 6.6 percent in fiscal year 2017-18. In spite of austerity drive, the government did not succeed to contain its expenditures and enhance revenues. The federal government spent 20 percent more than last year but its total revenues were 6 percent lower than the preceding year. Debt and defence spending consumed Rs3.23 trillion or 80 percent of federal government revenues. Overall expenditures of federal and provincial governments stood at Rs8.34 trillion in the last fiscal year which is higher by Rs857 billion or 11.5 percent. Compared with that, total revenues stood at merely Rs4.9 trillion that is Rs328 billion or 6.2 less than the previous fiscal year. In order to fill the deep gap, Pakistan received a net Rs416 billion in foreign loans and Rs3 trillion in domestic loans during the last fiscal year. Gross foreign loans stood at Rs1.4 trillion. In the context of the three-year IMF bailout programme, Pakistan has committed to step by step transform the primary deficit into a surplus. This will require huge efforts to accelerate tax revenues and reduce non-interest expenditures. The worrying factor was an exorbitant reduction in tax revenues, including that of the FBR, with regard to the size of national economy. 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. Against the budgeted Public Sector Development Programme of Rs800 billion, the actual PSDP spending stood at only Rs561.7 billion. It was even less than the Rs661 billion in last year. Due to the accelerating debt burden, Pakistan spent Rs2.1 trillion on debt servicing in the past fiscal year, higher by Rs591 billion or 40 percent over the past year. Against a budget of Rs1.1 trillion, the military spending stood at Rs1.15 trillion. As late as possible June 2019 the government had announced that it intended to keep the deficit at 7.1 percent of GDP, whereas its target at the start of the year was set at 4.9 percent. No matter what efforts were made to control expenditures ended in sorrow, although increase revenue decline had begun to face much earlier in first three quarters of the year. Defence spending, remained not changed at 3 percent of GDP when compared with last year. In the last fiscal year there was record breaking outrageous decline in tax to GDP ratio, perhaps justifying the requirement for a huge Rs1.550 trillion worth of additional taxation measures during current year. The overall tax to GDP ratio levelled out to 12.7 percent in 2018-19 compared to 15.2 percent in the last year in 2017-18. The full year collections came in at Rs4.9trillion compared to Rs5.23trillion a year before. Total expenditure amounted to 21.6 percent of GDP in 2018-19, little lower than 21.8percent of GDP in 2017-18. Current expenditure was at 18.4 percent of GDP for the year ending June 30, 2019 compared to 17 percent of GDP in fiscal year 2018. Development expenditure and net lending amounted to 3.2 percent of GDP which is the lowest since 2008-09. The budget deficit of 8.9 percent of GDP in 2018-19 stood at 38 years back as the deficit reached such an extent in 1979-80. This budget deficit is the second largest-ever deficit in last 43 years as once it had risen to 10.3 percent of GDP in fiscal year 1975-76 during the term of office of Zulfikar Ali Bhutto. Budget deficit escalated to highest ever in eight years. Dr Hafeez A Pasha stated that the budget deficit was calculated at 4.9 percent of GDP fiscal year 2018-19 which was calculated upward at 5.1 percent of GDP after coming into power. Prior to budget for 2018-19, it was stated that the budget deficit would stand at 7.2 percent of the GDP. Dr Ashfaque Hassan Khan, former adviser to Finance Ministry and Dean NUST, stated that it was not government of Pakistan single responsible but IMF itself assisted to largely rise in the budget deficit in recent record of the country. It placed requirement to raise discount rate by 6.75 percent and depreciation of exchange rate that accelerated load in debt to the cost of Rs3.2 trillion. He claimed debt servicing had consumed Rs2.091 trillion that was 5.4 percent of GDP out of which Rs1.120 trillion was added to the total amount spent in interest payment owing to increase in discount rate, which was near to 3 percent of GDP.