Pakistan’s deficit

Though Pakistan’s economic performance has not been enviable for long, during the past 30 months it has performed at a dismally low level. While the Covid-19 pandemic has not affected Pakistan as much as it has done in other countries, still the economy of Pakistan has seen drastic levels of deficit with no better performance in export. The latest figures show that the country has experienced nearly Rs1.14 trillion worth of fiscal deficit in the first half of the current fiscal year, which is 2.5 percent of GDP. Against this background, the government is planning to hold the inaugural meeting of the long-overdue 10th National Finance Commission (NFC) in the third week of February. The fiscal position of the centre as well as the provinces is in dire straits. The Ministry of Finance itself recognizes that the fiscal deficit as a percentage of GDP stood at 2.5 percent from July to Dec 2020. The same period in the first year of the PTI government in power – 2018-19 – had given us a deficit of as much as 2.7 percent of GDP, but in absolute numbers the deficit was around Rs1 trillion.

In the first half of 2019-20, the fiscal deficit was 2.3 percent of GDP with slightly lower than one trillion rupees. Even more disturbing is the fiscal data released by the finance ministry showing a total revenue of just Rs3.3. trillion, which is a meagre 7.4 percent of GDP, of which only two percent of GDP came from non-tax revenue. How can one justify the total expenditure in the same period at nearly 10 percent of GDP, and that too nearly nine percent of the GDP going to current outlay. Both total expenditure and current expenditure have displayed higher levels compared to last year. Much to the dismay of the people, we must point out that development expenditure has suffered a decline as the government has spent just Rs414 billion compared to Rs464 billion on development last year in the same period.

With these disappointing figures, we can draw at least two conclusions: one, development is not on the government’s primary agenda; and two, the upcoming NFC meeting will have significant importance at both national and sub-national levels. The two-point agenda that the government has set is revealing. It has asked the provinces to come prepared with their latest fiscal positions and future projections. With this level of deficit, the federal government must come up with a formula to form various sub-groups for fiscal arrangements between the centre and the provinces. Chairman NFC Hafeez Shaikh must bring the NFC back into life as the government has kept in in limbo for long. It appears that the centre wants the provinces to share the financial burden and take some additional fiscal responsibilities. Both the federal and the provincial governments must tread with care, as their decisions will have long-term impact on the national economy. Rather than burdening the provinces, the federal government must focus on reducing the deficit and make development a priority.