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ISLAMABAD: The Finance Ministry has stated that higher mark-up payments are putting significant pressure on expenditure, therefore, continuity of fiscal consolidation will help in maintaining the fiscal deficit within manageable levels.

The Economic Advisor Wing (EAW) of the Finance Ministry in “Monthly Economic Update and Outlook” for February 2024 noted that it is imperative for the new government to complete the last review of the SBA and reach an agreement for a medium-term new program to sustain the hard-earned economic gains. The economy is benefitting from stabilization measures and GDP growth in the second quarter of the ongoing fiscal year is expected to increase to around three percent on stronger manufacturing output and higher production of crops including cotton.

The update added that difficult and unpopular measures including a reduction in the subsidy bill on power and gas through timely implementation of quarterly tariffs helped improve the primary account and no supplementary grants have been issued during this period and PSDP projects that fall under the provincial domain have been transferred to provinces.

Expenditures: Higher mark-up payments may put big pressure: MoF

The measures taken to conclude the IMF staff review included the annual rebasing of power tariffs, the semi-annual gas tariff adjustment, and the SOE policy to enhance governance and improve financial performance and a comprehensive Circular Debt Management Plan (CDMP) was enforced that focused on reforms to reduce high costs, improve DISCO performance, and increase competition and green energy.

And to sustain these gains, it is imperative the new government completes the last review of the SBA and perhaps more important is that it reaches an early agreement with the IMF staff on a new medium-term facility, to carry out the difficult reforms. To achieve this, the new government must take forward critical reforms on restructuring of the FBR, privatization of the loss-making SOEs including PIA, and the implementation of the SOE policy for improved governance and financial performance.

The data on the external sector noted that remittances have contracted by three percent to $15.8 billion during July-January 2023-24 from $16.3 billion for the same period a year before, exports posted a growth of 9.3 per cent to $18 billion from $16.4 billion while imports have decreased 11.1 per cent to $29.8 billion from $33.5 billion. Current account deficit during the period under review after a decrease of 71.2 per cent was recorded at $1.1 billion during the first six months of the ongoing fiscal year from $3.8 billion while Foreign Direct Investment (FDI) declined 21.4 per cent to $689.5 million from $876.8 million.

However, portfolio investment increased to $96.5 million during July-January 2023-24 from negative -1025.5 million in July-January 2022-23 and total foreign investment increased to $785.9 million from negative -148.8 million.

On the fiscal side, the Federal Board of Revenue collection was Rs5,149 billion during July-December 2023-24 compared to Rs3,966.4 billion for the same period of last fiscal year reflecting an increase of 29.8 per cent and federal non-tax revenue to Rs1,979 billion from Rs914 billion for the same period a year before with an increase of 116.5 percent, whereas, the PSDP (federal) was Rs152.1 billion as opposed to Rs161.5 billion, reflecting a decline of 5.9 percent. Fiscal deficit was recorded at Rs2,407.8 billion during July-December 2023-24 against Rs1,683.5 billion for the same period a year before showing an increase of 43 percent and the primary balance was Rs1,812 billion against Rs890 million with an increase of 103.6 percent.

Agriculture credit disbursement was Rs1,105.8 billion during July-December 2023-24 against Rs842.4 billion for the same period a year before reflecting an increase of 31.3 percent and credit to the private sector was decreased 80.1 percent to 97.5 billion from Rs488.8 billion for the same period a year before.

The report added that overall growth in the domestic taxes has increased by 40 percent, with the rebound in economic activity, rise in profitability of companies –banks, oil and gas, and the manufacturing industry and import taxes posted a growth of 16 percent due to improvements in the valuation of imports that yielded Rs151 billion as well as anti-smuggling drive witnessed almost 69 percent growth in the fiscal year 2024.

Accumulation of public debt and net domestic borrowing has decreased by 67 percent to Rs1.9 trillion from Rs5.8 trillion in the preceding period and most of all the domestic debt profile has improved to 3.1 years in January 2024, from 2.7 months in Jun 2023.The government’s ability to service the public debt liabilities are hampered by weak tax collection, rising losses of SOEs, and the highest interest rates since 1972.

The headline Inflation has remained persistently high, but we anticipate a significant fall in inflation in 2024 due to improvement in the supply of imports of raw materials, higher food production, and stability in the exchange rate market. Assuming no exogenous shocks, including a rise in international oil prices, the SBP projects inflation to fall to five percent to seven percent range by the fiscal year 2025.

Copyright Business Recorder, 2024

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