ISLAMABAD: Pakistan’s general government debt (including guarantees & IMFborrowing) during the first quarter of current fiscal year, showedsignificant decline as it fell to 84.7 percent of Gross Domestic Product(GDP), however by the end of previous year, the country’s debt had risen to88 percent of GDP.
A recently published report on Pakistan by International Monetary Fund(IMF) said that this decline in debts was mainly driven by Pakistangovernment’s smart performance in reducing expenditures, registeringprimary budget surplus and increasing tax and non-tax revenues during thefirst five months of current fiscal year.
“In the first quarter of current fiscal year (2019-20), budget execution bythe incumbent government improved considerably, and the general governmentbudget registered a primary surplus of 0.6 percent of GDP and an overalldeficit of 0.6 percent of GDP, about 1 percent of GDP better thanprogrammed,” the report added.
It said the over-performance was driven by stronger than expected non-taxrevenues, accompanied by double-digit growth in tax revenue net of refunds.
At the same time, due to import compression, customs receipts and otherexternal sector-related taxes have suffered (up only 6 percent year onyear), the report said adding that spending, including by the provinces,has remained prudent.
The report observed that in FY 2019, the general government budgetregistered a primary deficit of 3.5 percent of GDP and an overall deficitof 8.9 percent of GDP, against its target of 1.8 and 7 percent,respectively.
Revenue collection at the federal level came in 2 percent of GDP, lowerthan expected, while total expenditures and provincial fiscal balances werein line with projections, it added.
Around three-fourth of the revenue shortfall was due to one-off factors,which are not expected to carry over into FY 2020. In particular, delays inrenewing telecom licenses, a temporary delay in the sale of state assets,and weaker than the authorities expected tax amnesty proceeds contributedaround 1 percent of GDP, while a shortfall in the transfer of State Bank ofPakistan (SBP) profits to the budget, stemming from losses related to theexchange rate depreciation in late-FY 2019, contributed an additional 0.5percent of GDP.
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As a consequence of the fiscal slippages and the exchange ratedepreciation, but also the government’s decision to increase cash depositsconsiderably to provide a financing cushion against potentially unfavorablemarket conditions, general government debt (including guarantees and IMFborrowing) rose to 88 percent of GDP.
With respect to government’s performance in revenue collection, the reportobserved that with 34 percent nominal growth, compared to first quarter ofFY 2019, total revenue over-performed the programmed projections by 0.2percent of GDP.
On account of tax policy measures implemented at the beginning of FY 2020,the domestic component of tax revenue collected by the FBR, recorded robustgrowth of 25 percent year on year.
Growth was particularly strong in sales and direct taxes, where mostmeasures were targeted (including removal of tax exemptions, zero andreduced rates).
At the same time, taxes collected at the import stage were impacted bysubstantial import compression, with a decline in all revenue categoriesexcept of sales tax.
Given that more than 40 percent of total tax revenue in Pakistan iscollected at the import stage, this shortfall had a notable impact onoverall tax revenue performance—0.2 percent of GDP lower than programmed.
