A one-off sudden spike in non-tax revenues has helped the government restrict the budget deficit to just Rs900 billion during the first four months of this fiscal year, despite a surge in interest payments to a staggering Rs2.3 trillion.
The higher non-tax revenues, which multiplied to Rs1.6 trillion, have also camouflaged the poor fiscal performance by the provinces that are seemingly on a spending spree ahead of general elections.
Government sources said the central bank had given close to Rs1 trillion in profits in October, pulling the Centre’s non-tax income to Rs1.6 trillion during the first four months. Non-tax revenues were equal to 54% of the annual target after the federal government decided to tap the SBP profits beforehand. By the end of September, the government’s non-tax income was hardly Rs453 billion, according to Ministry of Finance documents.
According to government sources, during the July-October period of this fiscal year, the interest payment rose to Rs2.3 trillion or equal to nearly one-third of the annual allocations. They added that the higher debt servicing cost has, for now, been compensated by a bullet profit payment of close to Rs1 trillion by the State Bank of Pakistan.
The central bank injection, given before time, has helped restrict the federal budget deficit to Rs900 billion or 0.9% of the size of the economy. But, its sustainability still needs to be investigated. Interest payments equal 82% of the federal government’s net income of Rs2.8 trillion. Although the Ministry of Finance has allocated Rs7.3 trillion for interest payments in the budget, the International Monetary Fund (IMF) has already upwardly adjusted its debt servicing projection to Rs8.63 trillion.
The SBP-dominated Monetary Policy Committee (MPC) is scheduled to meet on Tuesday to set the policy rate for the next two months. The current interest rate of 22% is eating up most of the tax revenues and is a root cause of the record budget deficit.
