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Stress of widening budget deficit in last fiscal

Pakistan ranked third largest fiscal deficit country among 36 economies: ADB

Pakistan recorded a record budget deficit of Rs2.26 trillion (6.6 percent of GDP) in the last financial year 2017-18 due to a lagged performance of the tax machinery and expansionary fiscal policies.

The Ministry of Finance in its annual consolidated and provincial budgetary operations report said budget deficit widened to Rs2.26 trillion in fiscal year 2018, equaling 6.6 percent of GDP. Fiscal year 2018’s budget deficit broke fiscal year 2017’s record of Rs1.864 trillion.

The budget deficit for fiscal year 2018 was Rs780 billion (2.5 percent of GDP) higher than the target approved by the last parliament in June 2017.

The budget deficit of 6.6 percent of GDP breached the limit approved limit of 4.1 percent set by the previous parliament. The record budget deficit for fiscal year 2018 has been blamed on hasty expenditures by the provinces and federation as general elections loomed and a precipitous fall in tax and non-tax revenues.

The budget deficit of 6.6 percent of GDP was the highest recorded during the five-year tenure of the previous government. This doesn’t include around Rs2 trillion of liabilities not recorded in the budget books. These liabilities not recorded in the budget books are linked to the outstanding debt of gas, commodity and power sectors. Overall circular debt including the one parked in Private Holding Power Limited (PHPL) has risen to Rs1.1 trillion.

To finance this gap, Pakistan obtained Rs785 billion in shapes of foreign loans and Rs1.5 trillion in domestic loans in fiscal year 2018 and gross foreign loans were recorded at Rs1.235 trillion.

During fiscal year 2018, the actual external debt repayments touched Rs450.2 billion against a budget projection of Rs326 billion, revealed an official summary. Pakistan’s gross public debt ballooned to Rs28 trillion or 72.5 percent of GDP. As the debt burden rises, the country spent Rs1.5 trillion or one-third of its overall budget on debt servicing in fiscal year 2018.

Leaving aside the Khyber-Pakhtunkhwa government, Punjab, Sindh and Balochistan governments cumulatively book a budget deficit of Rs22.4 billion, spending lavishly ahead of general elections instead of generating a cash surplus of Rs347 billion. Sindh’s budget deficit for FY18 stood at Rs42.3 billion, Balochistan overspent Rs7.8 billion.

In Punjab, the overall expenditure swelled to Rs1.42 trillion against revenues of Rs1.4 trillion, a deficit of Rs6.6 billion. However, the KP government booked a cash surplus of Rs34.4 billion.

After the transfer of provincial shares, the federal government overall net income was recorded at Rs2.5 trillion, however, it sustained expenditure of Rs4.7 trillion, resulting in a deficit of Rs2.2 trillion.

Tax revenues of the federal government declined by around Rs265 billion against a projection of Rs4.3 trillion.

This was attributable to the inability of the Federal Board of Revenue (FBR) to attain its annual tax collection target of Rs4.013 trillion. The tax regulators collection was recorded at Rs3.842 trillion, which includes the Rs121 paid under the tax amnesty scheme.

Also, tax collection under other heads declined to touch Rs223.6 billion, resulting in a shortfall of Rs94 billion largely due to a decrease in recovery of Gas Infrastructure Development Cess (GIDC). Non-tax revenues recorded a shortfall of Rs350 billion, touching Rs630 billion.

This was attributable to the United States decision to curb Coalition Support Fund (CSF) payments, lesser than the budget profit of the central bank and shortfall in dividends and mark-up receipts.

Defence receipts were recorded at Rs12.7 billion against budget estimates of Rs142 billion. Public Sector Development Program (PSDP) actual spending was recorded at Rs660 billion against a budget of Rs1 trillion including development grants to the provinces.

The actual current spending in fiscal year 2018 increased to Rs3.8 trillion against budget current expenditures of Rs3.4 trillion because of a rise in budgeted defence and debt service spending.


Asian Development Bank report

Pakistan was ranked the third largest fiscal deficit country among 36 economies in Asia and the Pacific with 5.8 percent of GDP, according to the Asian Development Bank (ADB). ADB in its latest report titled ‘Key Indicators for Asia and the Pacific 2018’, states that as a percentage of GDP, the largest deficits were in Brunei Darussalam (9.9 percent), Mongolia (6.2 percent), Pakistan (5.8 percent), and Myanmar (5.7 percent) in 2017.

The report states that Pakistan lagged behind other economies of Asia and the Pacific in terms of its use of foreign inputs, with a backward participation ratio of close to 5 percent in local production processes. This is largely because Pakistan’s leading exports were textiles and textile products, whose intermediate goods and services were mainly sourced domestically.

Stunted growth among children below the age of 5 years is 45 percent in Pakistan, compared to 40.9 percent in Afghanistan. Safe water is essential for daily living but access to safely managed drinking water services was available to at least 95 percent of the population in only 5 of 18 economies – Hong Kong, China (safely managed drinking water services available to 100.0 percent of the population); New Zealand (100 percent), Singapore (100 percent), the Republic of Korea (98.0 percent), and Japan (97.2 percent) – with available data for 2015.

Pakistan was not one of these countries. The data indicates that less than half of the population in Tajikistan (47.4 percent), Pakistan (35.6 percent), Bhutan (34.2 percent), Nepal (26.8 percent), and Cambodia (24.1 percent) had access to safely managed drinking water.

From 2000 to 2015, Armenia, Azerbaijan, and New Zealand increased the proportion of their respective populations using safely managed drinking water services by more than 20 percentage points.

Growing urbanization, all economies of Asia and the Pacific with available data have reduced the proportion of the urban population living in slums. From 2000 to 2014, the Lao People’s Democratic Republic (47.9 percentage points), Cambodia (23.8), Bangladesh (22.7), Mongolia (22.2) and Viet Nam (21.6) decreased the proportion of their urban populations that live in slum areas by at least 20 percentage points.

The decline in the proportion of the urban population living in slums was fewer than 5 percentage points for Thailand (1.0), Pakistan (3.2), and Myanmar (4.6).

The dollar value of financial and technical assistance increased in 31 of 40 reporting economies when comparing averages over the periods 2000-2008 and 2009-2016. The dollar value of the average financial and technical assistance between the two periods of time grew by over 250 percent in Kazakhstan, Mongolia, and Myanmar.

In absolute terms, Afghanistan ($897.3 million), Indonesia ($676.1 million), Pakistan ($480.2 million), and Viet Nam ($406.3 million) had the largest growth in average financial and technical assistance over the two periods. The lowest average (male and female) levels of primary educational attainment in the latest year for which data is available were observed in Pakistan (71.3 percent), the Marshall Islands (76.9 percent), and Papua New Guinea (77.4 percent).

Significant gains in reforestation were observed in Taipei, China (4.5 percent); the Philippines (3.1 percent); and Azerbaijan (2.4 percent). The biggest losses in the amount of forested land in 2015 occurred in Pakistan (2.8 percent), Myanmar (1.9 percent), and Timor-Leste (1.6 percent).

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