Pakistan’s fiscal deficit for FY2018-19 stood at Rs. 3.445 trillion or 8.9% of total GDP as reported by the Ministry of Finance. This is the highest ever deficit in Pakistan’s History. The fiscal deficit in 2017-18 stood at Rs. 2.26 trillion or 6.6% of GDP.
The revenue collection during the year remained subdued while expenditures remained elevated leading to the increased difference between revenues and expenditures of the federal government. Majority of Fiscal deficit came in the last quarter (April’19 – June’19) as it increased by Rs. 1.5 trillion during the quarter. As per analysts, due to the rise in Interest rates, an increase of Rs. 1.1 trillion to the interest payments was witnessed which led to an increase in the fiscal deficit.
It is quite surprising to see an increase in fiscal deficit despite a decline in public sector spending.
Lower Revenue Collection led to a deficit
As per Ministry of Finance Officials, Tax-to-GDP ratio declined to 12.72% in 2018-19 compared to 15.2% in 2017-18. FY2019 Revenue collection remained subdued and was reported at Rs. 4.9 trillion as compared to Rs. 5.23 trillion in the last year marking a decline of 6.3%.
Lower Probability of significant decline in Fiscal Deficit this year
Government of Pakistan has in principle agreed with IMF to contain the Fiscal Deficit and bring it to 0.6% of GDP (excluding Interest Payment) within a year. This seems unrealistic as Tax collection is expected remain stagnant amid the economic recession. Although an increase in Tax Net is expected, however, it may not result in , massive increase in tax collection as businesses face a challenging situation amid economic decline.