ISLAMABAD: The Finance Ministry has stated that the sharp (V-shaped) economic recovery after the control of Covid-19, coupled with the international market dynamics in response to the Russia-Ukraine conflict, has put the country into a crisis in terms of higher fiscal deficit. Fiscal policy statement 2023 uploaded on the ministry’s website added that furthermore, the unattended issues of the energy sector and a sharp rise in domestic and external debt during the last few years put fiscal sustainability at risk.
To put the country on the right track, revenue mobilization through broadening and deepening the tax base, rationalizing exemptions, and simplifying procedures would be critical factors. Looking into the challenges for large deviations of non-tax revenue collections should be the government’s priority. Further, on the expenditures side, there is a need to curtail the total expenditures, especially the current expenditures, within the budget estimates. It requires rationalization of subsidies to the energy sector.
Though the devastating flood has negatively affected agricultural production, the government is putting efforts into achieving sustainable growth in industrial and services sectors, including agriculture. However, global and domestic demand reduction is being witnessed, which is expected to hurt economic growth and revenue collections.
Budget deficit: PIAF calls for controlling govt expenditure, high cost of debt servicing
But all efforts are being put in place to achieve a sustainable fiscal deficit. Government is also committed to dealing with the long-standing financial issues of the energy sector. The financially viable resolution of this issue is expected to mature in the coming month or so, which will further create policy space for a permanent solution.
For FY2023, economic growth is likely to remain below the budgeted target due to the devastation created by floods. This combination of low growth, high inflation, and low official reserves is particularly challenging for policymakers.
Against the actual CPI inflation of 12.2 percent during the last fiscal year, the budget target is set to achieve enormously challenging (due to ongoing stagflation in the world) CPI inflation of 11.5 percent.
Copyright Business Recorder, 2023
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