The first quarter (July-September 2025) federal and provincial consolidated fiscal operations’ data, uploaded on the Finance Division website, claimed an impressive surplus of 2.1 trillion rupees against a budgetary surplus of 1.89 trillion rupees in the same period last year – a decline that could be sourced to statistical discrepancy of 261.890 billion rupees in 2025 against 117,239 million rupees last year.
Statistical discrepancy is defined as a balancer to reconcile differences between the three different ways of calculating the Gross Domestic Product (GDP) notably income approach, expenditure approach and production approach. This discrepancy points to shortcomings in data collection and the more significant the amount the lower the data credibility, which prompts major scrutiny by international donor agencies.
The 10 October 2024 International Monetary Fund (IMF) document titled “Article IV Consultation and Request for an Extended Fund Facility Arrangement under the Extended Fund Facility” noted that “data provided to the Fund is broadly adequate for surveillance in most areas, but there are weaknesses in the National Accounts (NA) and Government Finance Statistics (GFS) that somewhat hamper surveillance…..important shortcomings remain in the source data available for sectors accounting for around a third of GDP, while there are issues with the granularity and reliability of the GFS. The authorities are prioritizing addressing these weaknesses supported by Fund TA on the GFS and a new PPI index, and the Pakistan Bureau of Statistics will soon begin fieldwork for four major surveys ahead of the upcoming NA rebasing to FY26.”
The federal government statistical discrepancy in 2024-25 was recorded at negative 193 billion rupees (mainly due to increase in commercial bank deposits with scheduled banks) with provincial governments registering negative 136 (attributable to Khyber Pukhtookhwa and Balochistan increasing provincial deposits with scheduled banks).
In the first three months of the current year, federal government recorded a statistical discrepancy of 93 billion rupees due to decrease in commercial bank deposits and variations on account of time lag in reporting and book adjustments amongst the State Bank of Pakistan (SBP), Federal Board of Revenue (FBR) and Economic Affairs Division data.
Provincial governments registered a 355 billion-rupee discrepancy with (i) Punjab recording 209 billion rupees attributed to increase in commercial bank deposits, non-clearance, delayed payments, or late presentation of cheques relating to assignment accounts and below the line inflows (capital receipts). Sindh, KPK and Balochistan registered discrepancy of 47 billion rupees, 33 billion rupees and 66 billion rupees, respectively, due to movement in commercial bank deposits.
Finance Division claimed that federal government’s “primary current expenditures were managed prudently, with spending recorded at 1,297 billion rupees.
The release policy was strictly adhered to, so as to achieve fiscal discipline.” This claim is easily challenged, given that in July-September (i) 2024 current expenditure was 3,537,280 million while in 2025 it had gone up to 4,047,059 million rupees – a rise of 14 percent. This rise is the root cause of the need to generate higher revenue through higher taxes and non-tax revenue (which includes the petroleum levy that is a tax on the general public and is placed under non-tax revenue, as that is not shared with the provinces). This impedes growth and lowers employment opportunities with an obvious impact on poverty levels which, as per the World Bank, is a high of 42 percent; (ii) development expenditure July-September 2025 is cited at 295 billion rupees with authorisation (disbursement) cited on the Planning Ministry website at around 40 billion rupees. Thus, the amount noted in the consolidated fiscal operations data is not actual disbursement but authorisation which is the usual practice implying that the Planning Ministry authorised the amount, but it was not disbursed by the Finance Division due to lack of resources. In the same period, 2024 development expenditure was 276.7 billion rupees – a figure that again is probably authorisation that has little synchronicity with actual disbursement.
Borrowing (domestic) was 1.739 trillion rupees July-September 2024 against 2.081 trillion rupees in the same period this year — a rise of nearly 20 percent. The bulk of this was bank borrowing estimated at 1.8874 trillion rupees in July-September 2024 rising to 2.192 trillion rupees in the same period this year. This implies that the government continued to crowd out private sector borrowing from commercial banks.
Total nonbank revenue for the government (including savings schemes) was 112 billion rupees in the first quarter of 2025 while it was 135.8 billion rupees in the comparable period last year – reflective of higher reliance on government securities (339.9 billion rupees in the first quarter of the current year against 228.6 billion rupees in the same period last year). It is relevant to note that the discount rate at present is 11 percent against 22 percent last year – a decline that has not generated foreign portfolio investment which was in the negative territory for the first quarter of this year — negative 633.3 million dollars against 132.5 million dollars in the same period of 2024. This indicates the lack of confidence of foreign portfolio investors in our economy.
The Finance Ministry is projecting a further decline in the discount rate by next month which appears unlikely, given the persistent warnings by the IMF in its 15 October press release titled “IMF reaches staff level agreement on the second review for the 37-month extended arrangement under the extended fund facility programme and the first review for 28-month arrangement under the resilience and Sustainability Facility”: Maintaining an appropriately tight and data-dependent monetary policy.
The SBP remains committed to a prudent monetary policy stance, guided by incoming data, including the impact of recent floods and the evolving economic recovery, to ensure inflation remains durably within its target range of 5-7 percent.
Net External Financing July-September 2024 was negative 156,861 million rupees while in the same period this year it declined to negative 38,873 million rupees though the inflow is still negative in spite of the EFF and the RSF.
A look at the FBR reveals that 2.563 trillion rupees were collected July-September 2024 against 2.884 trillion rupees this year – a rise of 12.5 percent; however, the largest contributor to the increase was in sales tax collections, an indirect tax whose incidence is almost invariably passed on to the end users. Chairman FBR mentioned enforcement of sales tax on sugar manufacturers and cement manufacturers – a claim that explains why the price of these two items skyrocketed.
To conclude, the data released last week must be a source of serious concern for the economic managers and one can only hope that in-house reforms are initiated that must be led by a massive reduction in current expenditure – a policy that would reduce the need to follow an extremely contractionary fiscal policy that is pushing the country towards deindustrialisation indicated by not only the exit of foreign companies in recent months but also the shut-down of many local units.
Copyright Business Recorder, 2025