Editorial
30 April 2025
The International Monetary Fund (IMF) has projected a 2.2 percent rise in government expenditure this year – from 19.4 percent of Gross Domestic Product to 21.6 percent of GDP. This forecast raises two concerns.
First, the Fund’s October 2024 documents titled Article IV consultations and Request for an Extended Arrangement Under the Extended Fund Facility — Press release, staff report and statement by the Executive Director for Pakistan noted that “there are weaknesses in the National Accounts (NA) and Government Finance Statistics (GFS) that somewhat hamper surveillance.
The FY16 NA rebasing and recent publication of quarterly GDP have provided a better basis for assessing economic developments, but important shortcomings remain in the source data available for sectors accounting for around a third of GDP, while there are issues with the granularity and reliability of the GFS.
The authorities are prioritizing addressing these weaknesses, supported by Fund TA on the GFS and a new PPI index, and the Pakistan Bureau of Statistics will soon begin fieldwork for four major surveys ahead of the upcoming NA rebasing to FY26.” Thus, the data available for this forecast as noted by the Fund staff had “important shortcomings” and, in addition, it is unclear whether the scaled-down growth rate for this year, about 0.9 percent from what was budgeted, was taken into consideration.
And secondly, it would have been appreciated by domestic economists if the IMF had broken down total expenditure between current and development expenditure. The budget for the current year, approved by the Fund staff as a prior condition, envisaged an inexplicable 21 percent increase in current expenditure, in spite of the acknowledged narrow fiscal base. Critics argue that the blame for this rise which included a 20 to 25 percent rise in salaries of the 7 percent of those who are paid at the taxpayers’ expense must be borne not only by the Shehbaz Sharif-led government but also the Fund staff that approved it.
In addition, development expenditure, as was the norm in previous years during an active Fund programme, massively slashed this year to contain the budget deficit to meet other Fund quantitative conditions. Business Recorder has been urging the government to take an in-house decision to increase leverage with the Fund on harsh upfront conditions by reducing current expenditure significantly in next year’s budget, or at least to keep it at the same amount as in the current year.
Total current expenditure for the current year was budgeted at 17.2 trillion rupees with 9.77 trillion rupees budgeted for markup on debt with 8.7 trillion rupees budgeted for markup on domestic debt.
One may assume that the 20.5 percent discount rate announced by the Monetary Policy Committee during its meeting on 10 June 2024, a day after the budget was announced, was taken into consideration; however, given claims of the autonomy of the SBP it is possible that the budgeted markup may have been determined by the then prevailing discount rate of 22 percent. Be that as it may, today the rate is 12 percent and SBP sources reveal that the halving of the discount rate has reduced the budgeted markup by one trillion rupees.
The obvious question is whether this would reduce the current expenditure outlay from what was budgeted to 16.2 trillion rupees?
The answer to this query is limited to July-December 2024 or the first half of the current year as data released by the government titled Summary of Consolidated Federal and Provincial Fiscal Operations reveals the following: current expenditure 10.86 trillion rupees (63 percent of what was budgeted) with domestic markup at 7.6 trillion rupees (87 percent of what was budgeted) and development expenditure federal of only 132 billion rupees against the budgeted 1400 billion rupees (9.4 percent of what was budgeted). These statistics bode ill for the government claim that it has reduced current expenditure or that it is meeting the budgeted development outlay.
There is, therefore, an overwhelming need for the government to reduce if not cap the current expenditure for next year; otherwise, the GFS would continue to show a fragile economy heavily reliant on foreign and domestic borrowing as well as on raising the tax burden on the salaried and raising indirect taxes whose incidence on the poor is greater than on the rich.
Copyright Business Recorder, 2025
