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In a fiscal report released by the Finance Ministry for the first quarter of the fiscal year 2023-24, it is glaringly evident that debt servicing has become a behemoth concern for the Pakistani government. This issue is primarily attributed to the steep interest rates that prevailed during this period, which have gobbled up a staggering 48 percent of the government's total earnings.
The Magnitude of Debt Servicing
The government earmarked a colossal Rs. 7,304 billion for servicing both internal and external debt for the current fiscal year. This significant allocation underscores the sheer scale of the problem at hand. Of this allocation, a staggering Rs. 6,430 billion (equivalent to $22.17 billion) was dedicated to servicing internal public loans for the fiscal year. In addition, the government estimates that external loan servicing will consume Rs. 872 billion (about $3.1 billion) during the current fiscal year.
The Burgeoning Debt Stock
To comprehend the gravity of the situation, one must consider the total government debt. As of August 31, 2023, the central government's debt has reached an alarming Rs. 63.966 trillion. Within this, the internal debt alone has skyrocketed to Rs. 39.792 trillion, while the external debt stands at a staggering Rs. 24.174 trillion. These figures paint a picture of a government deeply ensnared in the clutches of debt.
The Impact of Policy Rate and Borrowing
One of the key factors exacerbating this situation is the steep hike in the policy rate. Over the past year, the policy rate surged by an astounding 6 percent, climbing from 17 percent to 23 percent. This surge was primarily implemented to combat inflation, reflecting the government's concern about economic stability. The State Bank of Pakistan spearheaded this rate increase to quell surging demand in the country. However, this policy rate hike, combined with extensive borrowing from internal sources, has intensified the pressure on the national exchequer in terms of debt servicing.
Mark-up Expenditure and Fiscal Allocation
The Fiscal Report reveals that the mark-up spending has witnessed a substantial increase, surging to Rs. 1,379 billion (approximately $4.75 billion) during the first quarter of the current fiscal year. Out of this, a substantial amount, Rs. 1,252 billion, was disbursed to service domestic public loans, while the remaining Rs. 127 billion was allocated for external debt servicing during the same period.
Comprehensive Expenditure Breakdown
The total expenditures for this period reached a staggering Rs. 3.648 trillion. These expenditures can be categorized into several key components:
1. Current Expenditure
- Rs. 3.172 trillion
2. Mark-up Payments
- Rs. 1.379 trillion
3. Defense Expenditure
- Rs. 343.068 billion
4. Pensions
- Rs. 203.303 billion
5. Running of Civil Government
- Rs. 131.917 billion
6. Subsidies
- Rs. 2.488 billion
7. Grants to Others
- Rs. 177.303 billion
In addition to these, development expenditure and net lending stood at Rs. 282.387 billion during the first three months. The federal Public Sector Development Program (PSDP) was allocated Rs. 40.925 billion, while the provincial allocation reached Rs. 245.53 billion. There was also a statistical discrepancy worth Rs. 193.563 billion.
The Alarming Budget Deficit
Pakistan's budget deficit has surged to a staggering Rs. 963 billion, equivalent to 0.9 percent of the GDP during the first quarter of the fiscal year 2023-24. To finance this deficit, the government had to resort to a combination of strategies, including net external borrowing of Rs. 425.170 billion and domestic (net) borrowing of Rs. 537.631 billion.
Tax Revenues
In terms of tax revenue, the figures are noteworthy. The total tax revenue for this period amounted to Rs. 2.216 trillion, with the Federal Board of Revenue contributing significantly. Their tax collection reached Rs. 2.041 trillion, with direct taxes amounting to Rs. 934.789 billion and indirect taxes totaling Rs. 1.106 trillion. These indirect taxes included taxes on international trade (Customs) amounting to Rs. 252.220 billion, sales tax at Rs. 726.944 billion, and federal excise at Rs. 127.594 billion. On the provincial front, tax collection reached Rs. 175.391 billion.
Non-Tax Revenues
Non-tax revenue collection was no less significant, totaling Rs. 468.815 billion. Federal non-tax revenue accounted for the majority of this figure, standing at Rs. 452.069 billion. Components of federal non-tax revenue included mark-up from provinces (Rs. 18.142 billion), mark-up from Public Sector Enterprises and Others (Rs. 66.762 billion), dividends (Rs. 33.816 billion), profit from Pakistan Telecommunication Authority and others (Rs. 3.581 billion), defense receipts (Rs. 6.600 billion), passport fees (Rs. 14.541 billion), discount retained on crude oil (Rs. 6.317 billion), royalties on oil and gas (Rs. 41.652 billion), windfall levy against crude oil (Rs. 5.710 billion), petroleum levy on LPG (Rs. 870 million), gas infrastructure development cess (Rs. 378 million), petroleum levy (Rs. 222.067 billion), and other revenue (Rs. 32.633 billion). On the provincial side, non-tax revenue reached Rs. 33.888 billion.
In conclusion, Pakistan faces an onerous challenge in managing its debt servicing obligations, exacerbated by high interest rates and extensive borrowing. The government must strategize and optimize its revenue streams to tackle this issue effectively, ensuring the country's long-term financial stability. The path forward involves prudent financial management, fostering economic growth, and addressing the factors that have contributed to this predicament.
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