The mother of all ills

Pakistan Tehreek-e-Insaf (PTI) government’s ever-shifting economic team has been constantly firefighting since taking the helm last year and thus far they have nothing to their credit in terms stability and this ill-handling has marred the matters to the measure that this regime is now on the brink of incurring a monstrous political loss.

Also read: FBR faces Rs68 bn shortfall in July, August

Prime Minister Imran Khan had secured support of urban educated class with deafening slogans that two other top mainstream political parties failed to deliver mainly because of alleged corruption and the PTI would bring reforms into institutions by ensuring right man for right job on top of bring prosperity in the lives of common people of Pakistan.

Related: Budget deficit escalates to highest ever in eight years

It was the commitment of PTI leadership that the Federal Board of Revenue (FBR) collection would be doubled from Rs4,000 billion to Rs8,000 billion. Now one fiscal year has ended and there is a need to analyse the performance of government on the fiscal front.

The PTI government made a history on many fronts of the economy. Under the leadership of PTI, the fiscal year 2018-19 witnessed highest ever absolute figure of fiscal deficit that had ballooned to Rs3,444 billion, a historic level that had never seen by this country under any political or military led dispensation in over 70 years.

At least, in the last two decades it was another record made by this government that the FBR collection remained negative in fiscal year 2018-19 compared to the collection of last corresponding year. The FBR had collected Rs3,829 billion in the first year of the PTI in 2018-19 against Rs3,842 billion in the same period of the last fiscal year 2017-18.

In the recent known history, the FBR had never witnessed such a massive revenue shortfall in single year as it had to face during the first year tenure of the PTI led regime. The FBR had initially envisaged collection target of Rs4,398 billion, which was revised downward to Rs4,150 billion on the eve of budget for 2019-20 but even this revised target was missed with massive margin as the collection despite amnesty scheme could touch only Rs3,829 billion mark. Another record made was that the non-tax revenue faced a massive shortfall.

According to a top bureaucrat in fiscal year 2016-17 former finance minister Ishaq Dar assumed the portfolio of finance ministry he was assigned to take care of non-tax revenue collection in the last month of June and collect Rs100 billion. In June 2016-17 the finance ministry had collected Rs90 billion so the total collection of non-tax revenue climbed close to Rs1 trillion, the bureaucrat said. Now what happened during the PTI led regime which had come into power with the slogan of ‘right man for right job’ and with the promise to ensure meritocracy, the non-tax revenue collection dropped massively and stood at just Rs427 billion.

In the last quarter (April-June) period of 2018-19 the non-revenue collection stood at only Rs6 billion. It is a fact that because of devaluation the profits of State Bank of Pakistan (SBP) turned negative but where was an alternate strategy? The finance ministry gurus were simply clueless and unable to rectify the situation.

The PTI made another record as they added Rs10.7 trillion to the debt burden mainly because of yawning budget deficit and flawed exchange rate and monetary policies.

Another debate had erupted regarding budget deficit when it recorded the highest level in a historical prospective.

The budget deficit widened to 8.9 percent of gross domestic product (GDP) in 2018-19, the largest-ever in the last eight years. It had touched a level of 8.8 percent of the GDP in fiscal year 2011-12.

This deficit of 8.9 percent in 2018-19 was equivalent to the same recorded 38 years back in 1979-80 during Zia’s regime. This is the second largest-ever deficit in the last 43 years as once it had escalated to 10.3 percent of the GDP in the fiscal year 1975-76 during the tenure of Zulfikar Ali Bhutto.

The budget deficit under the PTI rule went up 2.4 percent of GDP in 2018-19 compared to last government’s in 2017-18 and shot up mainly because of a massive shortfall in both tax and non-tax revenues.

The tax revenues fell short of 1.3 percent of the GDP while non-tax revenues 1.1 percent so revenue shortfall mainly contributed to the hike in the budget deficit.

This yawning budget deficit would raise certain complications with regard to ongoing International Monetary Fund (IMF) program. Under the IMF program, it was projected by both the IMF and Pakistani officials that the budget deficit for 2018-19 would be restricted at 7.2 percent of the GDP with primary deficit of 1.8 percent of GDP.

Now the primary deficit stands at 3.5 percent of the GDP for 2018-19 and Pakistan has committed to slash it down to 0.6 percent of GDP by end of the current fiscal year. Now how such a mammoth fiscal adjustment of around 3 percent equivalent to Rs 1300 billion would be made in the current fiscal year. It is big question mark because the primary deficit is calculated excluding debt servicing requirement on the payment of loans. So what options will the PTI led regime be left with?

In order to curtail the deficit, the government would have to slash down either development or defense budget. Any expectation of surge in development spending seems a difficult preposition in the recent context when ministry of finance will be focusing on achieving primary deficit target.

Secondly and more importantly, the revenue collection in first two months (July and August 2019) witnessed a shortfall of Rs68 billion and collection in September 2019 would set the stage for the continuation of the IMF program. In the wake of massive shortfall for achieving the quarterly envisaged target of Rs1,072 billion, the government will be left with two options either to come up with a mini budget or further reduce the development budget at federal level to achieve the target on fiscal front.

The budget deficit which is called the mother of all economic ills is all-set to aggravate difficulties on economic fronts in months. Therefore, the country’s economic helmsmen are urged to prepare an alternate strategy to cope with emerging challenges on fiscal front of the economy.

Courtesy: The News

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