Govt walks a tight rope
FDI in various sectors, including power, oil and gas exploration, financial, and petroleum refinery sectors, witnessed a 6.4-fold increase, reaching $211 million in December 2023 compared to $33 million last year. photo: afp
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The government will walk a tight fiscal rope in the next fiscal year, too, as it plans to unveil the second budget on Tuesday envisaging a federal budget deficit of Rs6.2 trillion or 4.8% of size of the economy.
The total size of the budget is expected to be around Rs17.6 trillion, which is 7.3% less than this year's original budget due to relatively lower allocations for the interest payments in fiscal year 2025-26, according to the Finance Ministry's budget estimates.
The government sources said that the proposed budget deficit is 2% of the GDP or Rs2.3 trillion less than the original estimates of this fiscal year. The deficit may still be appearing large in absolute terms. But it is, for the first time, lower than this year's gap, both in terms of size of the economy and in absolute numbers.
The tight budget envisages fiscal consolidation of 2% of GDP, as the government is planning to set the budget deficit target at 4.8% of GDP, the sources said. This will be 2% of GDP or Rs2.6 trillion lower than this fiscal year's target.
Finance Minister Muhammad Aurangzeb will deliver his second budget speech on June 10.
The expenditure path is known to be narrower and predicted. However, it seems that the government may again adopt the business as usual approach on the revenue front, which is unsustainable and puts the country's marginalized salaried class and corporate sector at risk of being insolvent.
The fiscal consolidation is the need of the hour but it will drastically reduce the government's ability to spend due to no space left for any productive spending after making payments for the interest servicing and defense.
However, whatever space is left is not prudently used and the sources said that the quality of spending becomes poorer with large allocations for provincial projects, discretionary spending on the schemes recommended by the Parliamentarians at the expense of space technology and atomic energy programmes.
The sources said that the fiscal consolidation is again planned to be achieved by putting more burden on the people, directly as well as indirectly. The government is projecting gross federal revenues at record Rs19.4 trillion for next fiscal year, higher by Rs1.6 trillion.
The gross revenues are based on the Federal Board of Revenue's tax target of Rs14.13 trillion and Rs5.2 trillion non-tax revenues. The non-tax income will mainly come from the Petroleum Levy, which the government wants to increases to nearly Rs100 per liter, and the profit by the State Bank of Pakistan.
The sources said that like this fiscal year, the FBR may remain the weak area in the next fiscal year, too, despite the required growth to achieve the goal will be far lower than this year.
The new tax collection target will become challenging from first day of next fiscal year because the FBR will not be able to achieve even the downward revised target of Rs12.3 trillion, said the sources. This will erode the base of new tax target.
Prime Minister Shehbaz Sharif tried everything to put the FBR house in order but all those measures backfired. The FBR's ability to predict revenue estimates is also not up to the mark and this year the World Bank experts helped in projecting numbers, said the sources.
Out of the Rs14.1 trillion FBR tax collection, the provinces will get Rs8 trillion as their shares in the federal taxes under the National Finance Commission award, the sources added.
This leaves the federal government with Rs11.4 trillion net revenues for next fiscal year, which will not be sufficient to meet the interest payments and inclusive all defense spending, according to the government sources.
The government will borrow Rs6.2 trillion in the next fiscal year to finance the Rs17.6 trillion total federal budget.
Under the IMF programme, the four provinces are also required to save Rs1.33 trillion from their revenues as cash surplus to bring down the national budget deficit to Rs4.8 trillion or 3.7% of GDP, the sources said.
This is steeper fiscal consolidation and would require all the five governments to meet all their revenue and expenditures related targets.
The four provinces have indicated nearly Rs2.9 trillion for their development spending in the next fiscal year. This is Rs850 billion more than what the IMF has allowed to spend to the four provinces under the national fiscal framework.
Punjab has indicated Rs1.2 trillion record spending on development, followed by Rs995 billion by Sindh.
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