The government is focusing its utmost attention on managing non-mark-up spending, given that the current expenditures are escalating due to the elevated policy rates.
According to the latest reports on Thursday, Pakistan’s debt servicing in the form of mark-up on principal and outstanding loans has witnessed a significant 74% increase during the first five months (July-November) of the current fiscal year, in contrast to the corresponding period of the previous fiscal year.
Moreover, an additional challenge has emerged on the fiscal front concerning to the decrease in the revenue surplus generated by the provinces. The revenue generated in the initial five months of the ongoing fiscal year amounted to Rs107.9 billion, which is a decline from the Rs202.5 billion generated in the same period of the preceding financial year.
The primary concern faced by the government is the upward trend of markup payments caused by the elevated policy rates, resulting in a notable surge in current expenditures. Nonetheless, the government is exerting considerable efforts to manage non-markup spending, as evident from the increase in primary surplus during the period of July to November in the fiscal year 2024.
The upcoming meeting of the Monetary Policy Committee of the State Bank of Pakistan (SBP) is scheduled for next week. If the committee decides to raise the interest rate, it would lead to a higher allocation of revenues towards debt servicing in the coming months, posing challenges for the Ministry of Finance.
In the period of July to November in the fiscal year 2024, the total expenditures registered a growth of 43%, amounting to Rs4,831.0 billion compared to Rs3,367.4 billion in the previous year. The increase in current spending by 46% was primarily driven by a substantial rise in markup payments, which surged by 74% during the first five months of the current fiscal year. On the other hand, non-markup spending witnessed a modest growth of 20% due to the government’s efforts to curtail expenditure.
The overall fiscal deficit for the July to November period of the current fiscal year stood at 1.3% of the Gross Domestic Product (GDP), equivalent to Rs1,375.4 billion, compared to Rs1,168.6 billion (1.4% of GDP) for the same period of the previous financial year. However, the overall primary balance remained in surplus, amounting to Rs1,542.1 billion in the first five months of the current fiscal year, in contrast to Rs511 billion in the same period of the previous financial year.
The government had agreed with the International Monetary Fund (IMF) to limit the primary surplus to Rs397.2 billion, equivalent to 0.4% of the GDP, for the current fiscal year.
The fiscal deficit was reduced to 1.3% of the GDP (Rs1,375.4 billion) in the July to November period of the fiscal year 2024, from 1.4% of the GDP (Rs1,168.6 billion) last year. The overall fiscal deficit for the fiscal year 2024 is projected at 6.5% of the GDP. The improvement in the primary surplus was attributed to controlled growth in non-markup spending, resulting in a surplus of Rs1,542.1 billion (1.5% of GDP) during the July to November period of the fiscal year 2024, compared to a surplus of Rs511.0 billion (0.6% of GDP) last year.
During the July to November of the fiscal year 2024, net revenue receipts showed a remarkable improvement, increasing by 68% to reach Rs3,347.7 billion, as compared to Rs1,996.5 billion last year. This positive performance was largely driven by a significant rise of 114% in non-tax collection (Rs1,757.2 billion against Rs822.4 billion last year) and a 30% increase in tax collection (Rs3,484.7 billion against Rs2,688.4 billion last year).
The tax collection by the Federal Board of Revenue (FBR) witnessed a growth of 30.3% to reach Rs4,469 billion during the July to December period of the fiscal year 2024, in comparison to Rs3,429 billion last year. During this period, the FBR surpassed the assigned target of Rs4,425 billion by collecting an additional Rs44 billion. The revenue performance indicates that the implemented tax policy and administrative measures are yielding positive results in terms of continuous improvement in revenue collection.
