March 11, 2020 (MLN): For the first time in Pakistan, Mid-Year reporting of the budget developments has been introduced which signified the intent of responsiveness and transparency of the Govt for better Public Financial Management to the legislature.

During the Mid-Year FY20, Pakistan's economy moved progressively along the stabilization and adjustment path. A steady policy mix has appeared to adequately address the macroeconomic imbalances. Structural adjustment process picked up momentum with the initiation of the IMF's Extended Fund Facility program coupled with consistent monetary policy to achieve the medium-term inflation targets.

Both on the revenue and expenditure sides, consolidation efforts on the fiscal front were visible which managed to restrict the fiscal deficit to 2.3% of the GDP compared to 2.7% last year.  To recall, the Federal fiscal deficit target is estimated to be 7.1% of the GDP for FY20.

On the revenue front, during July-December FY20, FBR has been able to collect around Rs. 2,093 billion as provisional tax revenues reflecting a growth of 16.6 percent on an account of improvement in documentation efforts,   including asset revaluations, tight financial scrutiny and introduction of structured mechanisms to formalize business value chains. 

The overall achievement during the first 6 months has been 95% of the targets as set by the FBR. The factors which attributed for shortfall include Unprecedented compression in imports, less consumption of petroleum products, a decline in Auto & Auto Parts Sector, less growth in Airline Sector, overall economic slowdown, very challenging and unprecedented revenue targets.

Interestingly, an upsurge in the collection of revenue (other than FBR) has been witnessed during the aforementioned period owing to increased SBP profits, receipt of outstanding cellular licenses renewal fees and a steady flow of other receipts from all streams as per projections.

On the expenditure side, Mid FY20 expenses have remained within budgeted estimates. Current spending for the running of civil Govt. was curtailed by rationalization and austerity measures. Due to the re-profiling of the payment structure into longer maturities, space was created to increase development spending without undermining the overall consolidation efforts. Priority has been given to development spending, in particular Ehsaas Program, Tourism Promotion initiatives and erstwhile FATA.

Keeping in view the important mobilization resource, PSDP has been given a sectoral focus wherein the sectors significant to Public Sector Development have been provided with ample funds in the ongoing year to produce the profound effect in the Public Sector Development.

With regards to budget financing, total public debt was recorded at Rs 33,707 billion at end December 2019 compared with Rs. 32,708 billion at end June 2019, registering an increase of only 3% during the first six months of FY20. 

It is important to state that though the Govt. borrowing during this period was Rs. 1,546 billion, total Public Debt increased by only Rs, 999 billion. This saving differential of Rs. 547 billion is attributable to exchange rate appreciation of Pak Rupee against US Dollar.

In line with the Govt.'s commitment, no new borrowing was made from SBP during this period. In fact, there was a net retirement of Rs. 285 billion in the outstanding debt obtained from SBP in previous years.

Besides, maintaining strict financial discipline, no new sovereign guarantee was extended.

During July-December FY20 major macroeconomic indicators signified solid validation of its sound policies which are highlighted below:

• Current Account Deficit (CAC) reduced by 75.0%

• Exports increased by 4.5%

• Rise in worker's remittances by 3.3%

• FDI grew by 68.3%

• Fiscal deficit was contained at 2.3%

• Primary balance posted a surplus of 0.6%

• Significant increase of almost 16% in FBR tax revenues to Rs.2093 bn

• 'Ease of doing business' ranking improved by 28 ranks, jumped country’s ranking from 136 to 108

• The up-gradation of Pakistan's credit rating outlook by Moody’s  from 'Negative' to 'Stable'

Going forward, it is expected that a path of sustainable economic growth can be achieved if fiscal consolidation measures keep intact financial discipline and increased revenue growth. The positive trend in ease of doing business, stable exchange rate, improved current account and better fiscal and monetary management, denote that the economic outlook seems promising.

However, it is essential to be stated that the second half of the current fiscal year imposes certain challenges and risks.  These include; imposing revenue target, fiscal and debt sustainability, expenditure discipline and development spending.

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