Published On: Wed, Sep 6th, 2017

Fiscal Deficit of Pakistan Hits Four-Year High at 5.8%

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Fiscal Deficit of PakistanFiscal deficit of Pakistan has been accumulated to a whopping 5.8% of gross domestic product (GDP) and reached Rs. 1.864 trillion mark in absolute terms, it is the highest in four years of the PML-N government and also in the Pakistan’s 70-year history.

According to 2016-17 fiscal operations report of the federal government, backed by decentralization, the four provincial governments appear to be pulling down the country’s fiscal capacity as they enter election mode with a spending spree.

This was strongly in contrast to a 3.8% limit budgeted for fiscal deficit set by Finance Minister Ishaq Dar for the financial year 2016-17 and approved by parliament and showed a loosening of fiscal discipline soon after the departure of International Monetary Fund (IMF) on completion of 3-year stabilisation programme in September 2016.

The 7th National Finance Commission Award in 2009 and 18th constitutional amendment in 2010 transferred increased provincial share in the country’s total revenue by a big margin and empowered the provinces to administer additional responsibilities including health, education, etc. The PML-N, although part of this devolution, has since been trying to rebalance the arrangement.

The summary of consolidated federal and provincial budgetary operations 2016-17 released by the ministry of finance said the total budget deficit ending June 30, 2017 amounted to Rs1.864trn against a budgeted limit of Rs1.276trn, showing Rs588 billion worth of slippage.

Finance Minister Ishaq Dar had pitched fiscal deficit at 8% of GDP at the end of fiscal year 2013-14 on the conclusion of PPP’s five-year term. He had announced a gap between total receipts and expenditures of the PPP’s last year at Rs. 1.834trn after including the power sector circular debt worth Rs. 480bn.

He had claimed credit the following year for bringing down budget gap to 5.5pc of GDP as Pakistan entered the IMF programme after clearance of circular debt. The fresh accumulation of circular debt has since been estimated close to Rs500bn now.

Major contribution to the country’s historic fiscal deficit appeared to have come from the four provinces that were required to provide a cash surplus of about Rs339bn during the last financial year. Instead of surplus, the provinces together offered another deficit of more than Rs163bn – making a net slippage of around Rs502bn.

Provincial expenditure also surged to 5.4% of GDP in 2016-17 against 4.8% of GDP four years ago in 2013-14.

The armed forces also exceeded their revised expenditure ceiling by Rs. 47bn by spending more than Rs888bn during fiscal year 2016-17 against Rs841bn sanctioned by the parliament. The defence expenditure amounted to 2.8pc of GDP during 2016-17 relatively higher than compared to 2.6pc of GDP in 2015-16.

The remaining net deficit – roughly estimated around Rs40bn – was contributed by the federal government. The federal government posted Rs. 1.778trn at the end of fiscal year ending on June 30, 2017, against a budgeted limit of Rs. 1.615trn.

The federal government also missed its targets set for financing of deficit. Against Rs820bn budgeted for external loans, the government was able to materialise Rs541bn and ended up raising Rs. 1.3trn from domestic borrowing against the Rs. 1.04trn target.

In overall terms, the total expenditure of the federal and provincial governments was put at Rs. 6.8trn against budgetary estimates of around Rs. 6.3trn for 2016-17.

On the positive side, total revenues inched up to 15.5% of GDP last year compared to 13% of GDP in 2012-13 and 14.3% of 2013-14.

Tax revenue also improved to 12.5% of GDP last year compared to 10.1% four years ago. Non-tax revenue, on the other hand, slipped to 3% of GDP last year against 4.2% four years ago.

Total expenditure also jumped to 21.3% last year against 19.8% four years ago. Here, the federal government expenditure was put at 10.9% of GDP last year against 11.2% four years ago.

Development expenditure on the other hand also increased to 5.3% of GDP or Rs. 1.69trn in 2016-17 compared to 4.4% of GDP or Rs. 1.185trn in 2013-14.

About the Author

- An enthusiast working in Dubai as an Assistant Operations Manager. Writing about Pakistan and the latest happenings, trends around the globe is my passion. A dreamer, learner and a major foodie.