Despite putting an additional burden of Rs 735 billion on people in the current fiscal year, Pakistan’s federal budget deficit projection has been revised to history’s highest at Rs 6.22 trillion, reported The Express Tribune.
The unending fiscal woes have pushed the country into a debt trap. This highly unsustainable level has already pushed the country into a situation where debt restructuring seems to be the only viable option. The federal government will book the highest-ever budget deficit despite putting an extra burden of Rs 735 billion on citizens till the end of June on account of higher gas and electricity tariffs and additional taxes.
The revision has been made in light of recent talks with the International Monetary Fund (IMF), which exposed the massive underreporting of expenditures at the time of budget presentation by the finance ministry, reported The Express Tribune.
Details showed that the federal budget deficit – the gap between the federal government’s expenses and income – was projected at Rs 6.22 trillion for the fiscal year 2022-23. In terms of the size of the economy, the revised deficit is equal to 7.4 per cent of gross domestic product (GDP).
The revised estimate is Rs 1.7 trillion, or 37 per cent, more than that approved by the National Assembly at the start of the fiscal year 2022-23. The federal budget deficit in June last year had been projected at Rs 4.5 trillion.
Not only that, but the budget gap is also Rs 690 billion more than what the government communicated to the IMF in December, reported The Express Tribune.
The government was initially reluctant to show the flawed picture of the budget but the IMF agreed to the fiscal framework only when it got figures that appeared closer to the real data.
The Rs 6.22 trillion deficit will be bridged by taking more loans from domestic and external sources, a task that the government is unable to perform due to the economic meltdown, reported The Express Tribune.
The figures also showed that the size of budget, which had been estimated at Rs 9.6 trillion in June, will rise to Rs 11.2 trillion, a new record for expenditure, which is also higher by 17 per cent.
A key reason for the record budget deficit is the unprecedented debt servicing cost of Rs 5.2 trillion, which is Rs 1.25 trillion, or 32 per cent, more than that approved in June, reported The Express Tribune.
Secondly, the subsidies, estimated at Rs 699 billion in June, are projected to swell to Rs1.2 trillion, higher by 68 per cent.
Pakistan has been trying hard to secure a staff-level agreement with the IMF for the past 26 days. It is now facing the challenge of avoiding sovereign default.
This week, the representatives of Rothschild, a specialised advisory firm for debt re-profiling and restructuring, met with Prime Minister Shehbaz Sharif and Finance Minister Ishaq Dar, reported The Express Tribune.
In its papers, Rothschild stated that debt stabilisation was unlikely in the short term given the need to address the flood consequences and finance the current account deficit.
At the same time, international rating agencies have continued to downgrade Pakistan in 2022-23 in the CCC category and the sovereign USD yield curve is now inverted, reflecting market expectations of default and ensuing restructuring by Pakistan.
The classification by the IMF of Pakistan’s public debt as sustainable or not will be one of the key outcomes of discussions between Pakistan and the IMF on the current programme review, according to a position paper the firm shared with the country’s top public offices.
“In view of the low level of available FX reserves, the debt management strategy of Pakistan may have to be revisited, to ensure the stability of Pakistani rupee and restoration of international capital markets’ confidence in the economy of Pakistan,” it advised the authorities.
