The IMF has cautioned that missing the Federal Board of Revenue’s (FBR) tax collection target for the first quarter by Rs60 billion will trigger a contingency plan. Federal development spending for the last fiscal year through the Public Sector Development Programme (PSDP) amounted to Rs0.635 trillion, while provincial development utilization was notably higher at Rs1.4 trillion. Despite these efforts, a significant statistical discrepancy of Rs0.173 trillion emerged, with the federal government’s discrepancy contributing Rs0.283 trillion. To manage a budget deficit of Rs7.2 trillion, the government secured Rs6.9 trillion in financing, but external funding was limited to just Rs0.32 trillion.

The federal government’s net revenue receipts in the fiscal year 2023-24 were insufficient to cover even a single major expenditure item, pushing Pakistan deeper into a rapidly growing debt trap. The Ministry of Finance also reported a statistical discrepancy of Rs281 billion, highlighting ongoing challenges in reconciling government accounts. Despite these issues, the government managed to achieve a primary balance of Rs0.952 trillion, or 0.9 percent of GDP, in accordance with IMF requirements.

According to the fiscal operations report for 2023-24, ending on June 30, 2024, the federal government’s net revenue receipts fell to Rs7.09 trillion, while debt servicing alone consumed Rs8.2 trillion. This shortfall forced the government to borrow nearly Rs1 trillion just to meet debt obligations. Gross revenue receipts were Rs12.36 trillion, but after transfers of Rs5.263 trillion to provinces under the NFC Award, only Rs7.097 trillion remained in net revenue for the federal government.

This starkly illustrates that all other expenditures—including defence, development, civil government operations, salaries, pensions, subsidies, and grants—were financed through additional borrowing. The country is now entrenched in a debt trap, leaving policymakers with limited options, particularly in the context of the 18th Constitutional Amendment and NFC Award. The fiscal operations report reveals that total revenues reached Rs13.3 trillion in the last fiscal year, while total expenditures soared to Rs20.5 trillion, creating a deficit of Rs7.2 trillion. Of the total revenues, Rs10.08 trillion came from government revenues, with the Federal Board of Revenue (FBR) collecting Rs9.311 trillion and provinces generating Rs0.774 trillion. Non-tax revenue collections amounted to Rs3.2 trillion, with the federal government contributing Rs2.96 trillion and provinces Rs0.23 trillion. Major sources of federal non-tax revenues included a petroleum levy of Rs1.019 trillion and State Bank of Pakistan profits of Rs0.972 trillion.

Total expenditures for the year stood at Rs20.47 trillion, with current expenditures accounting for Rs18.57 trillion. The largest expenditure item was debt servicing, which consumed Rs8.2 trillion, followed by defense spending at Rs1.858 trillion.

Federal development spending through the Public Sector Development Programme (PSDP) reached Rs0.635 trillion, while provincial development utilization was higher at Rs1.4 trillion. A statistical discrepancy of Rs0.173 trillion was recorded at the consolidated level, with the federal government accounting for a larger share of Rs0.283 trillion.

To address the budget deficit of Rs7.2 trillion, the government secured Rs6.9 trillion in financing, with external financing contributing a modest Rs0.32 trillion. However, the IMF has issued a warning: if the Federal Board of Revenue (FBR) misses its tax collection target for the first quarter (July-September) by Rs60 billion, the tax authority will need to implement a contingency plan during the current fiscal year.

The newly appointed FBR chairman faces the critical task of meeting the tax collection target for the first three months of the fiscal year. Failure to achieve this goal could lead to the introduction of a mini-budget. The IMF has set a target of Rs2,652 billion for the FBR in the first quarter. In July 2024, the FBR exceeded its monthly target by Rs4 billion, collecting Rs660 billion against the assigned goal of Rs656 billion. However, the remaining Rs2,592 billion target for the quarter remains a significant challenge, with the IMF emphasizing the importance of avoiding revenue shortfalls.

The IMF had earlier revised the overall tax collection target for the current fiscal year from Rs12,970 billion to Rs12,913 billion, despite parliament approving the higher figure. For the fiscal year ending on June 30, 2024, the FBR’s tax collection stood at Rs9,311 billion, surpassing the revised target of Rs9,252 billion.

Following the approval of the 2024-25 budget, the FBR introduced the Tajir Dost Special Procedure, 2024, which imposes fixed tax rates ranging from Rs100 to Rs60,000 per month based on the valuation of shops in 42 cities nationwide. Although approximately 150,000 shops have registered under the scheme, the actual tax collection remains minimal, amounting to only a few thousand rupees.

The FBR’s task of meeting its tax collection targets remains critical, with the potential introduction of a mini-budget if targets are not met. Although the FBR surpassed its July 2024 target, substantial challenges remain in achieving the overall Rs2,652 billion target for the first quarter. The IMF has revised the annual tax collection target, yet the FBR exceeded its previous target for the last fiscal year. The introduction of the Tajir Dost Special Procedure, 2024, aimed at increasing tax revenue from small businesses, has seen limited success so far. Addressing these issues effectively is crucial to stabilizing the fiscal situation and avoiding further economic strain.