According to media reports, Pakistan’s interest expenses increased significantly during the first half of this fiscal year to Rs 2.57 trillion, which is equivalent to 65 percent of the annual debt servicing budget, forcing the government to cut all other expenses except those related to defence. According to Ministry of Finance sources, the cost of interest on the federal government’s debt stock increased by 77% between July and December of this fiscal year.
Interest rates in Pakistan shoot up significantly
Due to the precarious situation, all other non-development expenditures, excluding defence, have been reduced by 15%, according to the most recent preliminary figures. According to government sources, development costs have been cut in half to make room for other costs. According to sources, the finance ministry paid about Rs 2.57 trillion in interest costs, a 77% increase. The government set aside Rs 3.95 trillion for interest expenses in the current fiscal year, but 65 percent of it has already been spent.
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Monetary Policy of Central Bank to meet to review possibility of further increasing interest rate to contain inflation
The fiscal year in Pakistan spans from July to June. The Monetary Policy Committee of the central bank will meet on Monday to explore the potential of hiking interest rates even more in order to control inflation and draw in foreign investment in light of the high cost of debt servicing. The cost of debt servicing might equal roughly Rs 5 trillion this fiscal year, or more than half of the total budget of Rs 9.6 trillion, according to a statement made by the finance minister earlier this month.
Urgent need to restructure domestic debt to create fiscal space
Despite the dire circumstances, the finance ministry doesn’t seem prepared to acknowledge the greatest danger to the nation’s long-term survival. In order to strengthen Pakistan’s case for renegotiating its international debt and to provide some budgetary flexibility, immediate internal debt restructuring is required. The government’s response to Pakistan’s “budget challenges” is the creation of yet another austerity committee. According to sources, the cost of defence in just the first half of the year was Rs 638 billion, or around 23% more than the previous year, after deducting expenses for military pensions and the programme to expand the armed forces. Spending over the past six months has been in accordance with the proclaimed yearly defence budget’s allotted amount of Rs. 1.563 trillion.
Pakistan remains debt trapped, despite increase in tax collection
With a net income of Rs 2.5 trillion, the government spent Rs 3.2 trillion, or 128 percent, or Rs 708 billion more than its net income, on debt repayment and defence. Due to the fact that spending are not being cut even while tax revenue has increased, it is likely that Pakistan will continue to be in debt. After attempting to obtain financial assistance from other nations for around four months, Pakistan has now decided to try to revive the IMF programme.
Only Rs 147 billion was spent on development in comparison to the enormous Rs 3.2 trillion spent on debt repayment and defence. The amount spent on development is Rs 141 billion, or 49%, less than it was during the prior fiscal year.
Pakistan Government to miss deficit target agreed upon with IMF
The total sum of the government’s other expenses, which were all dropped by Rs 225 billion or 15%, was Rs 1.3 trillion. As part of the IMF programme, Pakistan has agreed to reduce its primary deficit from 3.6% of GDP in the previous fiscal year to 0.2% of GDP when interest payments are taken out of the equation. But because of out-of-control expenditure, the government will fall short of the deficit goal established with the IMF.
Preliminary data, according to the authorities, shows that the government budget deficit climbed to around Rs 2.2 trillion in the first half of the current fiscal year. The shortfall between expenditures and receipts, or the federal budget deficit, was 2.5% of the GDP. Because of the inflated size of the economy brought on by a 25% inflation rate, the deficit had a greater impact even though it was smaller in nominal terms than the previous year.
Pakistan’s Tax Collection short of IMF target by Rs 170 billion
Over the same period last year, the government’s overall spending climbed by more than 4.7 trillion rupees, or Rs 870 billion, or 23%. But compared to this time last year, the government’s current spending climbed by 29% or Rs 1 trillion to roughly Rs 4.5 trillion. The government’s gross receipts grew by Rs 656 billion (18%) to Rs 4.3 trillion. The government gave the provinces Rs 1.8 trillion, a 6% increase over the previous year, as compensation for their share of federal taxes.
For the first half of the year, the Federal Board of Revenue (FBR) collected 3.342 trillion rupees in taxes, an increase of 422 billion or 14.4%. The IMF objective was missed by Rs 170 billion in the first six months of collecting. The amount of non-tax revenues rose by Rs 234 billion, or 33%, to Rs 950 billion as a result of rising fuel levy collection.
In comparison to the same time last year, the provincial surpluses decreased by 63%.
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