A sharp rebound in tax collection helped in containing fiscal deficit at 1.2 percent of GDP in the first quarter of FY18, lower than 1.4 percent in FY17. According to State Bank of Pakistan's first quarterly report on economy, in Q1-FY18, the primary balance turned into a surplus while revenue deficit shrank compared to Q1-FY17. The former indicates that expenditures excluding interest payments remained contained while the latter reflects that growth in revenue collection outpaced growth in current expenditures.

Total revenue recovered strongly; showing 18.9 percent increase in Q1-FY18 against 8.0 percent decline recorded in the same period last year. Although provincial tax collection also continued to gather pace, the major contribution came from FBR taxes, which grew by 22.0 percent in Q1-FY18 compared to 6.3 percent growth in Q1-FY17.

The report said that the growth in FBR taxes was not only the highest in Q1 during the last five years, but also broad-based. Both the direct and indirect taxes contributed to higher FBR taxes. Moreover, non-tax revenue also recorded a marginal increase of 1.9 percent. Against this, the consolidated federal and provincial expenditures grew by 12.8 percent compared to 2.8 percent increase in the same period last year. Much of the increase in overall expenditure was due to a sharp increase in current expenditure, which grew by 15.9 percent in Q1-FY18 against a decline of 1.3 percent recorded last year. Meanwhile, development expenditures grew by 15.4 percent in Q1-FY18, on top of 12.4 percent growth in Q1of FY17.

The resulting financing requirement was largely met through banking channels as mobilization from non-bank and net external financing in Q1-FY18 remained considerably lower compared to their respective levels in the last year.

The pace of public debt accumulation slowed down to 3.0 percent during Q1-FY18 from 4.4 percent increase in the same period last year. In absolute terms, the public debt stock reached Rs 22.0 trillion by end-September 2017, up from Rs 21.4 trillion by end-June 2017.

The quarter report said that this slower pace of accumulation in public debt Rs 526.3 billion during Q1-FY18 compared to Rs 759.8 billion in Q1-FY17 was largely due to lower domestic borrowing. It is worth highlighting that last year the government had borrowed more than its requirement and kept the additional funds in deposits with the banking system, which was not the case this year. On the other hand, external debt increased despite lower availability of net external financing for budget. This was because of revaluation losses of US$ 438.2 million, mostly due to the depreciation of US dollar against Euro and SDR.

Copyright Business Recorder, 2018