ZAHEER ABBASI & TAHIR AMIN
ISLAMABAD: The Finance Ministry has informed the National Assembly, on Monday that the federal fiscal deficit was 3.1 percent of the GDP (Rs1,393 billion) during the first half (July-December) of 2020-21 consequent to Rs3,185 billion expenditure against the net federal receipts of Rs1,792 billion.
In mid-year budget review report for fiscal year 2020-21 placed before the National Assembly, the Finance Ministry has said that Rs255 billion provincial surplus has helped reduce the overall fiscal deficit to 2.5 percent of the GDP i.e. Rs1,138 billion during the period under review.
The Finance Ministry added that from gross federal revenue receipts of Rs3,072 billion, the provinces were transferred Rs1,280 billion and the federal government was left with net federal revenue receipts of Rs1,792 billion.
The total expenditures of the federal government stood at Rs3,185 billion–with current expenditure of Rs2,915 billion and development and net lending of Rs270 billion.
The mid-year budget review report has been formulated to comply with the provisions laid down under Section 34(1) of the Public Finance Management Act, 2019.
The purpose of placing this report before the National Assembly is to apprise the lower house about the actual results achieved during the first half of the current financial year 2020-21 against the approved budget.
The report noted that for the financial year 2020-21, the overall fiscal deficit was projected at seven percent of the GDP.
The overall mid-year fiscal indicators have shown encouraging results as considerable growth in net revenue and effective expenditure control measures have helped contain the overall fiscal deficit to 2.5 percent of the GDP.
The Finance Ministry added that primary balance was Rs82 billion or 0.2 percent of the GDP, whereas, overall primary balance was recorded at 0.7 percent or Rs337 billion of the GDP during the first six months of the current fiscal year.
The review noted that the increase in the federal net revenue and containment of expenditure helped limit the federal deficit to 3.1 percent of the GDP.
The current account balance continued to improve, posting a surplus of US$ 1.1 billion (0.8 percent of the GDP) during the first half of the current fiscal year.
The data shows that financing of fiscal deficit of Rs1,393 billion was met through external borrowing of Rs454 billion and domestic borrowing of Rs939 billion.
Federal tax collection was Rs2,210 billion with direct taxes Rs831 billion and indirect taxes Rs1,379 billion.
The direct taxes include taxes on income of Rs827 billion, workers welfare fund of Rs4 billion while capital value tax remained zero.
The indirect taxes include customs duties of Rs338 billion, sales tax of Rs918 billion, and the federal excise duty of Rs123 billion.
The non-tax revenue stood at Rs862 billion during the first half of the current fiscal year.
The federal non-tax revenue included; (i) mark-up (PSEs and others) Rs44 billion; (ii) dividend from the SOEs Rs12 billion; (iii) surplus of the PTA including 3G/4G licence fee Rs19 billion; (iv) profit of the State Bank of Pakistan (SBP) Rs373 billion; (v) Defence receipts Rs7 billion; (vi) passport fee Rs7 billion; (vii) discount retained on crude oil Rs4 billion; (viii) royalties on oil and gas Rs35 billion; (ix) windfall levy against crude oil Rs1 billion; (x) petroleum levy on LPG Rs2 billion; (xi) Gas Infrastructure Development Cess (GIDC) Rs10 billion; (xii) Natural Gas Development Surcharge Rs13 billion; (xiii) UNO receipts Rs14 billion; (xiv) ICT taxes Rs8 billion, and Petroleum Levy Rs275 billion, and others stood at Rs24 billion.
The major sources of non-tax revenue for the federal government during the period are surplus profit of the SBP and the Petroleum Levy.
The latter has shown a growth of 110.4 percent.
The Finance Ministry maintained that the federal government has been able to achieve 54 percent of budgeted targets during the first half of the current fiscal year despite the adverse impact of the Covid-19 pandemic on the economic activity.
The Finance Ministry said that the major chunk of Rs2,807 billion current expenditure was spent on debt servicing and component of current expenditure included (i) interest payment Rs1,475 billion; (ii) defence spending Rs487 billion; (iii) pension Rs210 billion; (iv) running of civil government Rs195 billion; (v) subsides 129 billion; (v) grants to other Rs311 billion.
Expenditure on running of civil government has been restricted to 40 percent of the allocation by restricting supplementary grants and implementing austerity measures. Public debt servicing was recorded at Rs1,475 billion, out of which, domestic interest payments amounted to Rs1,357 billion and external interest payments amounted to Rs118 billion.
The total interest payments were in line with the budgeted amount and accounted for 50 percent of the annual budgeted estimates of Rs2,946 billion, it added.
Additional funds have only been approved as a supplementary grant by the federal government for current fiscal year.
During the first half of ongoing fiscal year an amount of Rs116 billion has been provided to combat the pandemic from the revalidated economic stimulus package, including the purchase of vaccines amounting to Rs25 billion.
Moreover, an amount of Rs64 billion has been utilised under Ehsaas Programme in order to provide relief to the vulnerable segments of society.
An amount of Rs232 billion has been utilised against the PSDP allocation of Rs650 billion upto December 2020.
The report added that borrowing operations remained in-line with the Medium-Term Debt Management Strategy (MTDS- fiscal year 2020-23) of the government.
The ministry added that the government is following the policy of zero borrowing from SBP since July 2019 and is maintaining a cash buffer with the SBP for meeting the contingencies/obligations.
The following are the key highlights: Similar to last year, domestic borrowing was made entirely from the financial markets during first half of the current fiscal year.
No borrowing was made from the SBP. In fact, an amount of Rs285 billion was repaid to the SBP during the first half of the ongoing fiscal year. All borrowings needed to finance the fiscal deficit were made through longer-term debt, while the government retired a portion of short-term debt (T-Bills) by around Rs579 billion during this period. The continuity in fiscal consolidation, stable exchange rate, improved current account and better financial management, presents a promising economic outlook. However, there are certain risks to fiscal sustainability.
Going forward the fiscal position would depend on the domestic and international evolution of the Covid, the report added.