PTI govt books highest-ever budget deficit of Rs3.45tr
By
Shahbaz Rana
Published: August 27, 2019
TWEET EMAIL
ISLAMABAD: In the first year of the Pakistan Tehreek-e-Insaf (PTI) government, public finances further deteriorated with the budget deficit rising to a record Rs3.45 trillion or 8.9% of size of the nation’s economy because of its sheer failure to enhance revenues and control expenditures.
The official figures released by the Ministry of Finance on Tuesday confirmed that the PTI government smashed its budget deficit target by 82% that stood at Rs3.444 trillion in the fiscal year 2018-19. The budgetary budget deficit target was just Rs1.9 trillion.
The 8.9% of GDP deficit was the highest in the past eight years in terms of size of the nation’s economy. In absolute terms, it was the highest-ever deficit, which broke last year’s record of Rs2.3 trillion, showed the finance ministry bulletin.
The disappointing results have made the budget 2019-20 irrelevant within two months of its approval by the National Assembly. The results have also put serious question mark over the PTI government’s ability to deliver on the $6 billion agreement with the International Monetary Fund (IMF).
The budget deficit in the first year of the PTI government was worse than the last years of the Pakistan Peoples Party (PPP) and Pakistan Muslim League-Nawaz (PML-N) governments. Traditionally, the governments tend to spend more in their last year in power compared with the first year that has historically remained the year of consolidation.
In the second last year of the PPP (2011-12), the budget deficit was equal to 8.8% of GDP that came down to 8.2% of GDP in its last year. The PML-N closed its account at budget deficit of 6.6% of GDP in fiscal year 2017-18.
Despite Prime Minister Imran Khan’s austerity policy, the PTI government miserably failed to contain its expenditures and enhance revenues. If one goes by the words of PM Imran, the tax collection figures suggested that the people did not trust the PTI with their money.
The federal government spent 20% more than the last year but its total revenues were 6% less than the preceding year. The debt and defense spending consumed Rs3.23 trillion or 80% of the total federal government revenues, according to the finance ministry.
The overall expenditures of federal and provincial governments stood at Rs8.34 trillion in the last fiscal year – higher by Rs857 billion or 11.5%. Compared with this, the total revenues stood at just Rs4.9 trillion – Rs328 billion or 6.2% less than the previous fiscal year.
After excluding provinces shares of Rs2.4 trillion in federal revenues, the debt and defense spending amounted to 159% of the federal government’s net revenues of just Rs2 trillion.
The Rs3.45-trillion deficit was Rs1.6 trillion, or 4% of GDP, higher than the target set by the PTI government. This is despite the fact that the PTI government brought two mini-budgets during the course of the fiscal year and also increased prices of the petroleum products.
In order to bridge the yawning 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.
Under the three-year IMF bailout programme, Pakistan has committed to gradually convert the primary deficit into surplus. For this fiscal year, the government is legally bound to bring down the primary deficit – calculated by excluding interest payments, to 0.6% of GDP – down from last fiscal year’s level of 3.5%. This will require massive efforts to enhance tax revenues and cut non-interest expenditures.
The troubling factor was steep reduction in tax revenues, including that of the FBR, in terms of size of the economy. Against the preceding year’s 15.2% of GDP revenues, the ratio slipped to just 12.7% at the end of the first year of the PTI government.
The FBR’s tax revenues that stood at 11.2% of GDP in the last year of the PML-N government, dropped to 9.9% of GDP in 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 this fiscal year under the IMF deal – which now seems impossible without a mini-budget.
The non-tax revenues that stood at Rs630 billion in the last year of the PML-N decreased to just Rs364 billion. The main reason was only Rs12.5 billion surplus 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 the PML-N time of Rs2.5 trillion.
The total expenditures of the federal government stood at Rs5.6 trillion as against its net income of only Rs2 trillion after paying shares of the provinces under the National Finance Commission – showing a gap of Rs3.6 trillion. After incorporating the cash surplus of Rs138.8 billion by four provincial governments, the federal government borrowed Rs3.45 trillion to bridge the deficit.
The total federal expenditures in the PML-N’s time were Rs4.7 trillion that increased by 19% or Rs895 billion during the first year of the PTI government.
The government tried to compensate shortfall in revenues and excess in current expenditures by massively scaling back the development and other development spending. Against the budgeted Public Sector Development Programme (PSDP) of Rs800 trillion, the actual PSDP spending stood at only Rs561.7 billion. It was even less than the Rs661 billion in the 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 Imran Khan’s claim of cutting the expenditures. This was largely because of higher than budgeted debt servicing spending, 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.
