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Budget gap widens 33% in July-December

muhammadhafeezmalik

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Budget gap widens 33% in July-December​


Deficit rises due to higher expenditures as revenue remains better than estimates

The government on Wednesday revealed the country’s fiscal health, confirming that the federal budget deficit in the first half of current fiscal year shot up to Rs1.85 trillion, up 33% compared to the same period of previous year.

The deficit mainly widened because of higher expenditures as the revenue remained better than the budgetary estimates, showed the fiscal operations summary for July-December of current fiscal year.
The Ministry of Finance released the summary, showing that the fiscal position was weakening.

The federal budget deficit – the gap between income and expenditures – was provisionally recorded at Rs1.85 trillion for the July-December period of ongoing fiscal year 2021-22.
The deficit cannot be compared in terms of the size of economy, as the ministry has used the new base year for the current fiscal year without updating the last fiscal year’s fiscal operations on the basis of new methodology.

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However, the governing council of Pakistan Bureau of Statistics (PBS) has not yet validated the shifting of the base of economy from 2005-06 to 2015-16.
During the first half of previous fiscal year, the federal budget deficit had been slightly lower than Rs1.4 trillion.

The annual federal budget deficit target is Rs4 trillion for the current fiscal year. Usually, heavy spending is made in the last quarter of every fiscal year.
The Pakistan Tehreek-e-Insaf (PTI) government took a net Rs1.02 trillion in foreign loans to finance the federal deficit. External financing for bridging the deficit was 126% more than the previous year, underscoring the country’s increasing reliance on foreign players to meet its expenditure needs.

Another Rs826 billion was borrowed from domestic sources to bridge the budget gap.
A major reason behind the surge in deficit was the uptick in current expenditures, as the government spent a lower amount under the Public Sector Development Programme (PSDP) to meet a condition of the International Monetary Fund (IMF).

The provisional fiscal operation figures indicated that the government’s strategy to contain the growing public debt by concentrating on increasing revenue may not help in a significant way because most of the Federal Board of Revenue (FBR) taxes were being transferred to the provinces.

Current expenditures were equal to 92% of the total federal government expenditures and over 38% of them were spent only on paying interest on loans.
Federal development spending stood at only Rs288 billion in the first half of current fiscal year, which was higher than the comparative period of previous year, but constituted only 32% of the annual budget of Rs900 billion.

Finance Minister Shaukat Tarin said in November that PSDP would be slashed by Rs200 billion to Rs700 billion to reduce the spending bill aimed at rationalising the expenditures. The IMF has projected federal PSDP spending of only Rs554 billion in its report released last week.

Development spending was higher by 24% (Rs56 billion) compared to the same period of previous fiscal year, which was not in line with the annual allocation.
The gap between federal income and expenditures grew despite a healthy momentum in the FBR’s tax collection. The tax collection increased nearly one-third to Rs2.92 trillion in the first half of current fiscal year on the back of higher collection at the import stage.

However, the gains made by the FBR were offset by nearly 17% dip in non-tax revenue.
Non-tax revenue collection amounted to Rs715 billion in the first half, down Rs147 billion compared to the same period of previous year. The non-tax revenue collection was equal to only 35% of the annual target of Rs2.1 trillion.

Gross federal revenue receipts increased to Rs3.64 trillion, up 18%. After paying Rs1.7 trillion to the provinces as their share in the National Finance Commission award, the net federal government’s revenue was only Rs1.94 trillion.

Total expenditures incurred by the federal government stood at Rs3.8 trillion, almost double the net government revenue, thanks to the uncontrolled current expenditures that were eating into the tax revenue.
Current expenditures amounted to Rs3.4 trillion, up 19% or Rs544 billion, during the first half of current fiscal year. Interest payments stood at Rs1.45 trillion, slightly less than the previous year, but consumed 72% of the government’s net revenue.

Some analysts argue that the central bank’s interest rate should not be more than 6-7% to control the growing budget deficit. They say a one-percentage-point increase in interest rate jacks up the debt servicing cost by around Rs150 billion.

The government has enforced a Rs360 billion mini-budget by imposing 17% sales tax on over 140 goods.

 

RealNapster

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Fiscal deficit 2.1% of GDP for first half of FY2021-22. Could have even lower had govt didn't lower tax on petrol.

View attachment 814243

In Pakistan people are not afraid of car/motorcycle prices but they are very afraid of petrol prices. Reminds me of the dialogue, jab Chala ni sakty to khareedty q ho ? Petrol prices in some Indian states already crossed INR 100. That's ,Pkr 220. India is no UK and people can't really say "Ary unki facilities or minimum wage ko b dek lo".
 

hydrabadi_arab

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In Pakistan people are not afraid of car/motorcycle prices but they are very afraid of petrol prices. Reminds me of the dialogue, jab Chala ni sakty to khareedty q ho ? Petrol prices in some Indian states already crossed INR 100. That's ,Pkr 220. India is no UK and people can't really say "Ary unki facilities or minimum wage ko b dek lo".

Price in India is Rs260/pkr now. Increase price to Rs180 and link petrol levy to development budget/PSDP. That levy can only be spent on PSDP, that will take care of development budget along with people knowing that their tax money is being spent on projects in transparent manner.

Otherwise PSDP is first causality when govt doesn't reach revenue targets or because of IMF.
 

ziaulislam

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In Pakistan people are not afraid of car/motorcycle prices but they are very afraid of petrol prices. Reminds me of the dialogue, jab Chala ni sakty to khareedty q ho ? Petrol prices in some Indian states already crossed INR 100. That's ,Pkr 220. India is no UK and people can't really say "Ary unki facilities or minimum wage ko b dek lo".
People can say inkey petrol ko daikho
They refine all petrol them selves so petrol should be cheaper in india then pakistan

we buy refined oil
 

RealNapster

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People can say inkey petrol ko daikho
They refine all petrol them selves so petrol should be cheaper in india then pakistan

we buy refined oil

@hydrabadi_arab since day 1 I was against the total removal of taxes on petrol. Instead I wanted it to reach 180+. This not only prevent excessive wastage of petrol that we do but will also bring necessary taxes. I like your suggestion that petrol taxes should directly go to PSDP. I once had the same thought for shifting all earnings (taxes) from telecommunication sector directly going to education budget.
 

Tomtheguy

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We apply almost 50 percent tax on petrol in india , so compared to zero tax Pakistani have we have to pay more also we have to import from Saudi majorly , Iran supplies are not utilised properly . Otherwise it will go down .
People can say inkey petrol ko daikho
They refine all petrol them selves so petrol should be cheaper in india then pakistan

we buy refined oil
 

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