The fiscal balance was initially in surplus during the first quarter (July-September) due to State Bank of Pakistan (SBP) profits, which provided a temporary boost. However, as expenditures outpaced revenues, the deficit emerged ahead of the upcoming International Monetary Fund (IMF) review under the $7 billion Extended Fund Facility (EFF), scheduled for late February.
The IMF’s Scope Mission has already begun discussions with the Federal Board of Revenue (FBR) to assess Pakistan’s fiscal performance and set the stage for formal review talks, led by IMF Mission Chief Nathan Porter in Islamabad.
Fiscal Discrepancies and Provincial Breakdowns
The statistical discrepancy in fiscal accounts indicates inconsistencies in recorded revenues and expenditures. The federal government’s discrepancy stood at Rs0.23 trillion, while the provincial breakdown was as follows:
- Punjab: Rs0.198 trillion
- Sindh: Rs0.22 trillion
- Khyber Pakhtunkhwa: Rs0.34 trillion
- Balochistan: Negative Rs0.53 trillion
Despite the growing deficit, the primary balance (excluding debt servicing) remained in surplus at Rs3.6 trillion during the first half of FY 2024-25, meeting a key IMF target.
Key Expenditures and Development Spending
Pakistan’s debt servicing and defence spending remained the largest expenditures, while development projects suffered significant cuts.
- Public Sector Development Programme (PSDP): Utilization stood at Rs0.132 trillion in the first six months, compared to Rs0.22 trillion in the first quarter.
- Provincial Development Spending: Rs0.639 trillion in the first half of the fiscal year.
- Debt Servicing: Rs5.14 trillion in six months. The Ministry of Finance has revised annual debt servicing projections from Rs9.7 trillion to Rs8.7 trillion due to consecutive policy rate cuts.
- Defence Spending: Rs0.89 trillion, the second-largest expenditure.
- Subsidies: Rs0.237 trillion, compared to Rs0.2 trillion in the first three months.
Revenue Collection and Borrowing
Total revenues in H1 FY 2024-25 stood at Rs9.76 trillion, including:
- Tax Revenues: Rs6 trillion (FBR collected Rs5.62 trillion)
- Non-Tax Revenues: Rs3.69 trillion, with the petroleum levy contributing Rs0.549 trillion
Total expenditures reached Rs11.3 trillion, leading to a budget deficit of Rs1.54 trillion, which was financed through:
- External Borrowing: Negative Rs0.78 trillion
- Domestic Borrowing: Rs1.61 trillion
Conclusion
Pakistan’s widening budget deficit, rising debt servicing costs, and reduced development spending highlight the challenges faced by policymakers. With an IMF review approaching, securing favorable fiscal adjustments will be critical in managing the economic strain and ensuring financial stability.
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