Pakistan’s fiscal health experiencing major challenges, MoF

Government facing challenging task in raising revenue, managing expenditures with lower fiscal deficit, MoF monthly outlook report

Minute Mirror - Subscribe
Minute Mirror - Subscribe

Pakistan’s economy continues to face considerable problems due to rising inflation, a slowdown in economic activity, and ongoing fiscal risk as a result of falling short of the goal established for the first nine months of the current fiscal year.

According to the Finance Ministry’s Monthly Economic Update and Outlook for April 2023, which was posted on Saturday, the government faces a challenging task in order to implement an effective strategy for raising revenue and a careful strategy for managing expenditures in order to end the current fiscal year with a markedly lower fiscal deficit than last year.

The Federal Board of Revenue’s (FBR) tax collection increased by 18%, but it still fell short of the goal set for the first nine months of the current fiscal year due to a slowdown in domestic economic activity and import reduction, highlighting the continued threats to the fiscal sector.

On the expenditure side, higher policy rates at the domestic and international levels have contributed to greater markup payments notwithstanding a decrease in non-markup expenditures.

As food and energy prices continue to rise, headline inflation (CPI) is anticipated to stay high in the upcoming months. The total price level has increased as a result of imposed price increases and currency depreciation. Despite the SBP’s contractionary monetary policy, inflationary expectations have not subsided. For April 2023, inflation is predicted to stay between 38 and 38 percent.

Due to import restrictions, tighter car loans, and sharp rises in raw prices, the auto industry’s performance also continues to be weak. With a dip of 28.7%, the decline in local cement deliveries was even more dramatic. A rise in export shipments, however, was a positive development.

Following a 36% increase in non-tax revenues, the net federal revenues increased by 22% to Rs3,133 billion from Rs2,374 billion from the same period the previous year.

The increase in non-tax revenue is primarily attributable to higher petroleum levy revenues, though other non-tax revenue sources, such as dividends, markup payments, the PTA profit, passport fees and royalties on oil and gas, have also increased significantly in the first eight months of the current fiscal year.

The primary balance posted a surplus of Rs781 billion (0.9 percent of GDP) during July-February 2023 as opposed to a deficit of Rs399 billion (-0.6 percent of GDP) last year as a result of a decrease in non-mark-up expenditures. The fiscal deficit was 2.8% of GDP during this time period as opposed to 3.4% of GDP for the same period in 2018.

After a recent increase of 26% in the BISP fund, the government increased the stipend under the Benazir Kafaalat initiative from Rs7,000 to Rs8,600. Up until March, the BISP reached over 247,000 children who were malnourished and 231,000 pregnant and lactating women (PLW) under the Benazir Nashonuma initiative.

According to figures from the balance of payments (BoP), the trade imbalance in goods and services decreased by 54.0% year and 9.1% month-over-month.

Remittances were $20.5 billion from July to March 2023 compared to $23 billion in the same period last year, a decrease of 10.8%; exports were down 11% to $20.5 billion from $23 billion; imports were down 21.3% to $41.3 billion from $52.7 billion; and the current account deficit was down 74.4% to $3.4 billion from $13 billion.