FeaturedNationalVOLUME 15 ISSUE # 03

Worsening fiscal indicators

The first year of the Pakistan Tehreek-i-Insaf (PTI) government marked a record 8.9pc fiscal deficit, the highest in the country’s history. Projections about Pakistan’s last fiscal year framework have gone wrong up to 94pc, which economists fear may force the government to renegotiate its $6b loan deal with the International Monetary Fund (IMF).

According to data released by the Ministry of Finance, Pakistan’s fiscal deficit in the last year stood at Rs3.445 trillion or 8.9pc of GDP — the highest since 1979-80. The deficit stood at Rs2.26 trillion or 6.6pc of GDP in the previous year. Government revenues fell steeply while expenditures remained at the level of the previous year, when expressed as a percentage of GDP. In absolute terms, expenditures broke previous records.

The figures are not only against estimates of the IMF, but also the government, which had announced in June 2019, it intended to keep the deficit at 7.1pc of GDP, whereas its target at the start of the year was 4.9pc. The statistics are also a setback to people’s hopes and the government’s claim that Pakistan is moving towards the right direction after some indicators showed signs of recovery. Pakistan has narrowed its trade loss to $664 million in July 2019, a 71pc drop from the trade loss in July 2018. Its current account deficit reduced to $579 million in the same period. Reducing the current account deficit is being seen as the PTI government’s biggest success since it came into power in August 2018. Pakistan’s imports have reduced from $61 billion to $55 billion, which means it saved $6 billion in just two months. Compared to June, exports and remittances have both increased by 24pc. The yearly comparison showed a 26pc decrease in imports and 11pc increase in exports. After a tumultuous year, the dollar has settled and the rupee stabilised in July after the IMF released its first tranche of $1 billion.

According to the IMF, Pakistan’s exports are expected to increase to $36.7 billion by year 2023-24. The pressure of current account deficit on the country will also ease out gradually from its peak of $19.9 billion in 2017-18 to $6.95 billion in the current fiscal year. The trade deficit is also forecast to decline to $24.9 billion in the current fiscal year from US $ 29.46 billion in 2018-19. In its recent staff report on Pakistan, the IMF estimated that the Federal Board of Revenue (FBR) would collect Rs5.5 trillion during the current fiscal year, which would increase to Rs7.001 trillion in the next year while the revenues would reach Rs8.3 trillion in 2021-2022 and Rs9.48 billion in the subsequent year on the back of policy measures committed by the Pakistan authorities. The overall revenues of the country will surge to Rs7.165 trillion in 2019-20, followed by Rs8.9 trillion in 2020-21, Rs10.6 trillion in 2021-22, Rs12.12 trillion in 2022-23, and Rs13.37 billion in 2023-24.

Against the estimates of the IMF and the Finance Ministry, all major fiscal indicators have deteriorated. However, the government may have a justification that it had not presented the budget for the last fiscal year. It was presented by the outgoing Pakistan Muslim League-Nawaz (PML-N) and the PTI government had to adjust it twice in the shape of two mini-budgets.

There is no doubt that the target of revenue collection is challenging, but still the government has managed to achieve some successes. The tax base has broadened significantly in the first year of the PTI government. According to the Federal Board of Revenue (FBR), the number of new tax return filers has more than tripled during the period. Its data shows that 783,039 new taxpayers filed returns with the tax department as a result of various schemes, including tax amnesty schemes. In terms of revenue, the FBR received Rs2.583b from the new return filers. In the last year of the PML-N government, only 190,391 new taxpayers were added to the total number. Similarly, the revenue collection with those returns remained low — Rs717 million during tax year 2017. The total return filers in the first year of the PTI government has reached 2.561 million in tax year 2018, as against 1.514m over the previous year, reflecting an increase of 69.1pc. The income tax collection has reached Rs188b this year as against Rs172b over the last year, showing an increase of 9.3pc. The growth in the collection of sales tax has been recorded at 26.92pc to Rs264b as against Rs208b over the last year. The Federal Excise Duty collection was recorded at Rs28b against Rs21b over the last year, showing an increase of 33.33pc.

The FBR has missed the revenue collection target by a whopping margin of Rs50 billion for August, the second month of the new fiscal year. The shortfall adds Rs14b to July’s deficit, taking the total shortfall in revenue collection to Rs64b in just two months of the current fiscal year. Against a target of Rs352b for August, the FBR has managed to collect Rs302b, which is much below the government expectation. However, when compared with last year’s figures, the revenue collection was recorded at Rs579b between July and August 2019, against Rs505b collected over the same months last year, showing an increase of 14.65pc.

The government may not have achieved its revenue target for the first two months after it presented its first full-fledged budget in July 2019, it is still more than collections in the same period last year. The revenue has also dropped because of falling imports. The PTI has set an ambitious revenue collection for the year. The revenue of the first two months indicates the government will be able to collect record revenue even if it failed to achieve its target. The government will have to work harder to generate enough revenue for debt service and public welfare.