The federal government’s spending soared to Rs4.83 trillion in five months, primarily due to surging interest costs and a modest easing of the budget for other expenses. This surge has cast doubt on claims of achieving fiscal consolidation.
Finance Ministry insiders disclosed that after maintaining stringent control over expenses until October, the leash was slightly relaxed last month, causing the federal budget deficit to spike by approximately Rs580 billion in just one month.
Between July and November of this fiscal year, the total federal government expenditures surged to Rs4.83 trillion, indicating a staggering increase of nearly Rs1.5 trillion or 43% compared to the corresponding period in the previous fiscal year.
Despite positive aspects such as the bullet profit payment from the State Bank of Pakistan in November that had kept the deficit in check, interest costs surged, contributing significantly to the overall expenditure hike.
Current expenses accumulated to over Rs4.7 trillion during this period, exhibiting a 45% increase or Rs1.47 trillion from the preceding year, surpassing the prevailing inflation rate of 29%. This rise undermines assertions of achieving fiscal sustainability.
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The Ministry of Finance recently claimed to have reined in fiscal and current account deficits, laying the groundwork for sustainable economic growth. However, sources attribute the 43% expenditure surge to interest payments on the government’s massive debt stock of about Rs65 trillion. Interest payments between July and November surged to Rs2.92 trillion, marking a 75% increase compared to the same period last fiscal year.
The staggering cost of debt servicing remains a significant impediment to Pakistan’s economic progress, fueled by the record-high 22% interest rate set by the central bank. This policy greatly benefits commercial banks, poised to rake in over Rs1 trillion in profits this year, nearly doubling last year’s figures.
The interest payments of Rs2.92 trillion accounted for 40% of the annual allocated budget of Rs7.3 trillion, significantly impacting federal income, which totaled Rs3.3 trillion in the same period.
While defense spending aligned with the annual budget at nearly Rs600 billion, the federal government’s net income of Rs3.34 trillion in five months fell approximately Rs170 billion short of combined expenditure on interest payments and defense.
Development spending in November saw a minor uptick, reaching Rs120 billion but remained 8% lower than the same period last fiscal year.
The IMF forecasts Pakistan’s budget deficit at 7.6% of its economy, a record Rs8.2 trillion, surpassing the official target, necessitating increased borrowing to sustain operations.
Additionally, provincial governments showcased concerning fiscal trends, with insufficient cash surpluses compared to the IMF’s primary budget surplus target, raising further concerns about fiscal health and tax-to-GDP ratios.
The federal government relied on both domestic and foreign borrowing, securing Rs1.1 trillion in domestic loans and Rs300 billion from international lenders to bridge the budget gap. This borrowing trend paints a complex picture of fiscal management and dependency.
