ISLAMABAD: At the end of the fiscal year on June 30, the previous PDM government departed with a substantial fiscal deficit, which represents the variance between income and expenditure. This deficit stood at 7.7% of the gross domestic product (GDP), a notable increase from its earlier assertion of 7%, as reported in official records.
The Ministry of Finance released Fiscal Operations Data, revealing that the fiscal deficit for FY23 was Rs6.521 trillion, equivalent to 7.7% of the GDP.
Analyzing Budget Projections And Actual Deficit Figures
When the government passed the FY24 budget in June, it had stated the fiscal deficit would be Rs5.94 trillion, about 7% of the GDP. This discrepancy amounts to roughly Rs580 billion. Both documents are accessible on the ministry’s website.
Likewise, the previous administration had asserted that the primary deficit, which represents the gap between income and expenditures excluding interest payments, would be 0.5% of the GDP, equaling Rs421 billion for FY23.
However, the latest official data discloses that the actual primary deficit was much larger at Rs690 billion or 0.8% of the GDP.
Although the provincial governments played a role in this deviation by not upholding their commitments to the Centre, the federal government itself is accountable for significant fiscal deviations.
While presenting the FY24 budget, the Centre had projected a provincial cash surplus of Rs459 billion to mitigate the fiscal deficit for FY23. In reality, they only provided Rs155 billion, resulting in a shortfall of approximately Rs304 billion. The remaining deficit of around Rs385 billion was attributed to the federal government’s actions.
Expenditure and income Patterns
PTI’s final year saw a slightly higher fiscal deficit of 7.9% (Rs5.260 trillion). The primary deficit surged by 83% to Rs2.077 trillion in FY22, leading to an escalating debt servicing cost.
Defense expenditure rose by 12%, now 1.9% of GDP. Total revenue to GDP ratio dropped from 12% (FY22) to 11.4% (FY23), with tax revenue to GDP ratio decreasing from 10.1% to 9.2%.
Non-tax revenue improved, reaching 2.1% of GDP (FY22). A significant contribution was the Rs580 billion petroleum levy collection, marking a 42% increase from the previous year.
Total revenue increased by 20% (Rs9.634 trillion) compared to Rs8.035 trillion in the preceding year. Total tax revenue grew by 16% to Rs7.82 trillion. Federal tax revenue rose by 17% to Rs7.169 trillion, while provincial revenue increased by 6% to Rs650 billion, contrasting the 29% inflation rate.
Total expenditure escalated by 22% (Rs16.155 trillion), with current expenditure surging by 27% (Rs14.58 trillion) in FY23.
Domestic Borrowing and External Repayment
To address the fiscal deficit, the government heavily relied on substantial domestic borrowing amounting to Rs7.2 trillion during the fiscal year ending on June 30, 2023. Additionally, around Rs680 billions of external debt was repaid, primarily due to reduced borrowing options abroad due to the suspension of the IMF program.
The portion of direct taxes within the GDP increased to 3.9% in 2022-23, equivalent to Rs3.27 trillion, up from 3.4% of GDP or Rs2.28 trillion in FY22.