Govt controls budget deficit at 3.8pc of GDP in nine months

Government had controlled the deficit due to budget surplus of provinces and increase in non-tax collection

ISLAMABAD         -              The government successfully controlled the budget deficit at 3.8 percent of the gross domestic product (GDP) in first nine months (July to March) of the current fiscal year (FY20) due to increase in non-tax collection and provincial surplus budget.

The country’s expenditures were recorded at Rs6.376 trillion as against the revenues of Rs4.689 billion in nine months of the ongoing financial year. Budget deficit was recorded at Rs1.686 trillion (3.8 percent of the GDP) in July-March period of FY20. The government had controlled the deficit due to budget surplus of provinces and increase in non-tax collection, which offset the massive shortfall in tax collection in period under review.

Earlier, Pakistan had agreed with the International Monetary Fund (IMF) to reduce the budget deficit to 7.2 percent of the GDP (Rs3.15 trillion) in the current fiscal year. However, the deficit is expected to widen due to the outbreak of coronoavirus. The Covid-19 pandemic is affecting the tax collection and increasing expenditures of the country, which would result in higher budget deficit in last quarter (April to May) of the present financial year.

The International Financial Institutions (IFIs) had already projected that Pakistan budget deficit would be much higher than the target of 7.2 percent of the GDP. The IMF had projected that budget deficit is expected to be -9.2 percent of GDP in FY 2020 due to decline in tax revenue and increase in public spending to support the health response, social safety nets  for the very poor. However, it is expected that in FY 2021 budget deficits will be improved to some extent and would be around 6.2 percent of GDP. World Bank expects that budget deficit will be-9.5 percent of GDP in FY 2020 and it will gradually decline to -8.7 percent of GDP in FY2021. As per ADB, the fiscal deficit will be 8.0 percent of GDP in FY2020 as the government continues to prioritize consolidation.

One of the main reasons behind higher budget deficit is massive reduction in tax collection. The IMF had estimated that the government would miss the tax collection target of Rs5.55 trillion by Rs1.647 trillion during ongoing financial year. The Federal Board of Revenue (FBR) tax collection would record at Rs3.908 trillion after COVID-19 against the initial target of Rs5.55 trillion. The FBR would also miss the revised target of Rs4.8 trillion by Rs892 billion.

The latest data of ministry of finance showed that the country’s expenditures were recorded at Rs6.376 trillion (14.5 percent of the GDP). The government had spent Rs1879.7 billion on paying domestic and foreign debt servicing. The break-up of interest payment showed that Rs1645.6 billion was spent on domestic debt and Rs234.078 billion of the foreign debt. The government had allocated Rs2.9 trillion for interest payment for the entire current fiscal year. Meanwhile, an amount Rs802.4 billion was spent on defence budget. The government had allocated Rs1.152 trillion for the defence for the current fiscal year.

Meanwhile, the government had spent only Rs340.4 billion on federal developments projects in the first nine months of the present financial year. Meanwhile, the provincial governments had spent Rs382 billion on the development projects. The spending on development projects had remained low. The documents showed that the government spent Rs332.3 billion on pension payments, Rs111.3 billion on public order and safety affairs, Rs53.43 billion on education, Rs7.66 billion on health and Rs6.5 billion on recreation, culture and religion.

Of the total revenues of Rs4.689 trillion, the government collected around Rs1 trillion as non-tax revenues during the first nine months of the FY2020. The non-tax collection had helped the federal government in restricting the budget deficit. Massive increase in non-tax collection had also offset the shortfall in tax collection of the Federal Board of Revenue (FBR).Meanwhile; the FBR had faced a massive tax collection shortfall of Rs476 billion in nine months of the year 2019-20. The FBR had collected Rs3050 billion in July to March period of the year 2019-20 as against the revised target of 3520 billion, leaving the shortfall at Rs476 billion.

The four provincial governments recorded budget surplus of Rs343.5 billion during July to March period of FY2020, as their expenditures remained at Rs2.123 trillion as compared to the revenues of Rs2.467 trillion. Massive provincial surplus had also helped the federal government in controlling the fiscal deficit in first nine months of the current fiscal year. The government had budgeted provinces to give budget surplus of Rs423 billion during current fiscal year.


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