Despite primary surplus, Pakistan’as fiscal deficit widens

ISLAMABAD-Despite a larger primary surplus, Pakistan’s fiscal deficit has widened due to the increased cost of debt servicing during the first half of the ongoing fiscal year 2022-23.

Presenting the World Bank’s recent report on Pakistan’s economic development, the lending agency’s senior economist Derek HC Chen said that the country’s fiscal deficit rose by 22.7% in 1HFY23, slightly higher than the growth of 20.6% in 1HFY22.

The fiscal consolidation efforts (revenue mobilisation and cutting down on unsustainable expenditures) have resulted in a decline in non-interest expenditure and an enormous build-up of surplus in primary balance. The primary surplus for 1HFY23 was more than tenfold the surplus for 1HFY22. However, the higher interest rate along with the massive rupee devaluation has significantly increased debt servicing costs.

The higher servicing cost has consumed more than 50% of total revenue and in turn, enlarged the deficit by the highest half-year growth rate in four years. According to the report titled ‘Pakistan Development Update – Recent Economic Developments, Outlook, and Risks – April 2023’, the country’s total revenue increased by 18.8% in 1HFY23, moderately higher than the 18% growth in 1HFY22. This was attained on account of higher tax and non-tax revenue.

The main drivers of growth in tax revenue were direct taxes and the Petroleum Development Levy (PDL), as revenue from direct taxes increased by almost 50% and revenue from the PDL more than doubled in 1HFY23. On the other side, the government’s interest receipts from lending to public sector enterprises (PSEs), and royalties on oil and gas, were the main contributors to the increase in non-tax revenue.

The country’s total expenditure increased by 19.8% in 1HFY23, marginally higher than the growth of 18.7% in 1HFY22. This was mainly driven by high-interest payments and the rupee depreciation. Total interest payments were 77% higher than in 1HFY22. Moreover, the exchange rate depreciated by 27% during this period. During 1HFY23, the public debt remained high and reached 64.0% of GDP.

Article source: https://www.nation.com.pk/16-Apr-2023/despite-primary-surplus-pakistan-as-fiscal-deficit-widens