Pakistan's debt falls by 3.3pc of GDP: IMF

Around three fourth of the revenue shortfall were due to one-off factors

ISLAMABAD (Web Desk) – Pakistan’s general government debt (including guarantees & IMF borrowing) during the first quarter of current fiscal year, showed significant decline as it fell to 84.7 percent of Gross Domestic Product (GDP), however by the end of previous year, the country’s debt had risen to 88 percent of GDP.

A recently published report on Pakistan by International Monetary Fund (IMF) said that this decline in debts was mainly driven by Pakistan government’s smart performance in reducing expenditures, registering primary budget surplus and increasing tax and non-tax revenues during the first five months of current fiscal year.

“In the first quarter of current fiscal year (2019-20), budget execution by the incumbent government improved considerably, and the general government budget registered a primary surplus of 0.6 percent of GDP and an overall deficit of 0.6 percent of GDP, about 1 percent of GDP better than programmed,” the report added.

It said the over-performance was driven by stronger than expected non-tax revenues, accompanied by double-digit growth in tax revenue net of refunds.

At the same time, due to import compression, customs receipts and other external sector-related taxes have suffered (up only 6 percent year on year), the report said adding that spending, including by the provinces, has remained prudent.

The report observed that in FY 2019, the general government budget registered a primary deficit of 3.5 percent of GDP and an overall deficit of 8.9 percent of GDP, against its target of 1.8 and 7 percent, respectively.

Revenue collection at the federal level came in 2 percent of GDP, lower than expected, while total expenditures and provincial fiscal balances were in line with projections, it added.

Around three fourth of the revenue shortfall were due to one-off factors, which are not expected to carry over into FY 2020.

In particular, delays in renewing telecom licenses, a temporary delay in the sale of state assets, and weaker than the authorities expected tax amnesty proceeds contributed around 1 percent of GDP, while a shortfall in the transfer of State Bank of Pakistan (SBP) profits to the budget, stemming from losses related to the exchange rate depreciation in late-FY 2019, contributed an additional 0.5 percent of GDP.

As a consequence of the fiscal slippages and the exchange rate depreciation, but also the government’s decision to increase cash deposits considerably to provide a financing cushion against potentially unfavorable market conditions, general government debt (including guarantees and IMF borrowing) rose to 88 percent of GDP.

With respect to government’s performance in revenue collection, the report observed that with 34 percent nominal growth, compared to first quarter of FY 2019, total revenue over-performed the programmed projections by 0.2 percent of GDP.

On account of tax policy measures implemented at the beginning of FY 2020, the domestic component of tax revenue collected by the FBR, recorded robust growth of 25 percent year on year.

Growth was particularly strong in sales and direct taxes, where most measures were targeted (including removal of tax exemptions, zero and reduced rates). At the same time, taxes collected at the import stage were impacted by substantial import compression, with a decline in all revenue categories except of sales tax.

Given that more than 40 percent of total tax revenue in Pakistan is collected at the import stage, this shortfall had a notable impact on overall tax revenue performance —0.2 percent of GDP lower than programmed.

One-off tax revenue inflows (around Rs 30 billion) also contributed to the overall result and are related to tax advances and tax amnesty receipts that were not collected at the end of FY 2019 but were realized in Q1 FY 2020 instead. Tax revenues collected at provincial level were also strong, increasing by 18 percent Non-tax revenues almost tripled in first quarter, the report added.