Severe debt and revenue crisis

Pakistan overall debt had increased by 40 percent in the past fiscal year, rising by Rs11.6 from June 2018 till September 2019. This is a massive increase. The Federal Board of Revenue showed the overall revenue collection to have fallen short of its target by more than Rs100billion in the month of January, taking the overall shortfall in the tax collection target to Rs387billion. This shortfall now will require to be made up in the remaining five months of the fiscal year, or otherwise the level of indebtedness will rise further. In domestic debt, for instance, the government accumulated an extra Rs4.3trillion the last fiscal year, but in the period from July to September, it amassed an additional Rs2trillion. Government deposits with the banking system show an accelerating increase of Rs1.75trillion, or excess than 55 percent, in the period from July to September. With approximately 40 percent increase in Pakistan’s public debt and liabilities in 15 months, the government acknowledged major violations of the Fiscal Responsibility and Debt Limitation Act (FRDLA) for considerably exceeding debt acquisition limits.
In its debt policy statement laid before the parliament, the ministry of finance noted that total debt and liabilities that stood at Rs29.879 trillion at the end of the fiscal year 2018 crossed Rs41.489tr at the end of September 2019, showing an increase of Rs11.6trillion or 39 percent. At the end of the fiscal year 2019, the total debt and liabilities were to have accelerated by about 35percent or Rs10.344trillion to touch Rs40.223trilllion.It was required to limit the federal fiscal deficit minus foreign grants to 4percent of gross domestic product during the three years, beginning from the financial year 2018-19 and maintaining it at a maximum of three and a half per cent of the GDP subsequently. The federal government has to lay the Debt Policy Statement and Fiscal Policy Statement before the National Assembly by the end of January each year. The government has also to reduce the budget deficit at 4 percent of the GDP. The federal governments take measures to reduce federal fiscal deficit to four percent of gross domestic product during the three years, beginning from the financial year 2018-19. Prime Minster Imran Khan has said that fears of Pakistan going into Chinese debt trap are groundless. The debt from China is a very small part, a small percentage of the country’s total debt portfolio, states Imran Khan.
The Federal Board of Revenue has faced a revenue shortfall of Rs104 billion in the month of January, which is making the revised annual tax collection target difficult to achieve. The FBR has collected Rs321 billion in January as against the target of Rs425 billion leaving the shortfall of Rs104 billion. In seven months (July to January) of the current fiscal year, the FBR could collect Rs2408 billion as compared to the actual target of Rs2872 billion and Rs2552 billion revised target. Keeping in view the present performance, the FBR would face challenge in achieving the revised target without additional revenue generation measures. The tax collection shortfall is increasing with the every completing month in spite of the fact that the government had introduced extensive taxation measures in the budget for the current fiscal year. The International Monetary Fund had already agreed with the government of Pakistan to revise downward the tax collection target to Rs5238 billion from the original Rs5550 billion. Nevertheless the Federal Board of Revenue is already striving to achieve the revised tax collection target. The FBR has faced shortfall of Rs144 billion in seven months period when compared with the revised target of Rs2552 billion. The FBR officials had acknowledge that the government could not achieve the revised tax collection without the mini budget. FBR proclaims an estimated loss of Rs56 billion of taxes is incurred on every billion dollar of import contraction. The FBR has again twice its efforts on domestic side and has managed to shift its tax dependence on import taxes from 56 percent to a just above 40 percent this year. With the expected revival of economic activity in the last six months and a possibility steadiness on of imports, it is expected that FBR is going to collect remarkable amount of taxes this year without stopping and twisting economic activity. Pakistan’s fiscal miseries continue and the latest is the revenue collection shortfall, which if not made up for in time, is going to have harmful affect for International Monetary Fund- sponsored bailout package under Extended Facility Programme (EFF) worth $6 billion. It is seen with every passing month the Federal Board of Revenue’s desired tax collection target of Rs5, 503 billion is totally unreasonable and not achievable and the government and IMF would have to revise it downward somewhere in the ongoing fiscal year. It was agreed, at one stage, the revenue collection target would be cut down by Rs233 billion against Pakistan’s demand of Rs300 billion. With a minimal growth of 14.5 percent, the real gross domestic product growth projection at 2.4 percent, and inflation around 11 to 12 percent, the anticipation of revenue growth in the range of 40 to 44 percent is beyond dream. The IMF is expected to dispatch its team for undertaking second review of its programme by February 2020 therefore Pakistani authorities will be making fresh requests to the fund team for revising the FBR’s collection target downward. If these proceeds are not acknowledge the budget deficit might escalate in worse of ways, agitating up a storm that could really plunge the IMF programme in the months to come. Pakistan will have to devise an effective fiscal strategy over curtailing only current account deficit.

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