EDITORIAL: The Finance Ministry uploaded a summary of the consolidated federal and provincial fiscal operations for the first quarter (July-September) of the ongoing year that shows little and in most cases no improvement from the comparable period of last year.
Data released notes that the GDP for July-September 2022 was 84,658 billion rupees while it rose to 105,817 billion rupees in the same period of 2023 – a rise of nearly 25 percent. While this rise is in nominal terms as it does not take account of inflation or money in circulation yet it does raise questions about the credibility of a comparison which at this stage maybe critical to understand any improvement or otherwise of the performance of key macroeconomic indicators.
It is, however, important to note that some key indicators registered a change in the first quarter of this year relative to the comparable period of the year before as a percentage of GDP: (i) mark-up payments rose to 1.3 percent of GDP against 1.1 percent of GDP; (ii) non-tax revenue rose to 0.4 percent of GDP against 0.3 percent – a rise reflective of the much heavier reliance on petroleum levy budgeted for the current year, which factually is an indirect tax and which due to provisions of the National Finance Commission (NFC) award has to be tagged under non-tax revenue even though the Auditor General recommended that this be placed with indirect taxes, specifically sales tax; (iii) budget deficit improved from negative 1 percent of GDP first quarter of last year to negative 0.9 percent in the comparable period this year — a decline backed by a rise in total revenue to 2.5 of GDP in the first quarter of 2023 against 2.4 percent in the comparable period of the year before and in defence which declined to 0.3 percent in 2023 against 0.4 percent last year; and (iv) primary balance registered 0.2 percent in 2022 against 0.4 percent in the first quarter of the current year.
The indicators that showed no change were: (i) current expenditure remained at 3 percent of GDP though in total terms it has risen considerably; (ii) tax revenue remained the same in the first quarters of 2022 and 2023 at 2.1 percent of GDP; and (iii) development expenditure and net lending were constant at 0.3 percent — an expenditure that is prime mover of growth in this country especially with government borrowing crowding out private sector borrowing with a resultant decline in output.
However, what requires an explanation is the massive rise in statistical discrepancy between the first quarters of 2022 and 2023: from 78,203 million rupees to 193,563 million rupees or a rise of 147.5 percent.
In this context it is relevant to note that the then finance minister, Ishaq Dar, exhibited a penchant for reliance on statistical discrepancy, defined as untraceable expenses that rose to 320 billion rupees July-December 2022 that was acknowledged by the Ministry of Finance.
For the current year too, a significant rise in statistical discrepancy was budgeted, reflective of Dar’s accounting background. For provincial governments, the statistical discrepancy July-September 2022 was negative 33,609 million rupees while in the comparable period of this year it was 120,032 million rupees.
The report also reveals disturbing profligacy on the part of the Punjab and Khyber Pakhtunkhwa (KPK) governments. The former exceeded budgeted spending by over Rs 28 billion.
However, due to surplus generated by the Sindh and Balochistan governments, the federal government was able to have a primary surplus of Rs 417 billion that not only met the IMF condition but surpassed it.
The Caretaker set-up maybe considering out of the box policies within their expanded terms of reference but have yet to implement them.
To date policies of the past are continue to be reflected in the summary of consolidated federal and provincial fiscal operations for the first quarter of the current year notably increasing borrowing and slashing development expenditure to create fiscal space to continue to fund current expenditure.
Heavy reliance, however, continues to be placed on crackdowns in multiple markets – foreign currency, staple food items — and on electricity thieves but unless accompanied by appropriate macroeconomic policies, prolonged efficacy of these measures would be very limited and may well erode over time.
Overall, the government has exhibited its resolve to cut subsidies and substantially reduce development expenditure on provincial public sector development projects and with the help of a hefty increase of 362 percent in collection of petroleum levy it has been able to register improved performance.
Henceforth it shall have to guard against the past trend of first quarter surpluses turning into second quarter deficits.
Copyright Business Recorder, 2023