Slowdown in non-tax revenues coupled with high development expenditure seem to have put a strain on the fiscal accounts. The fiscal deficit reached 2.4 percent of GDP in the first half, making full year target of 3.8 percent of GDP look very ambitious. Absence of Coalition Support Fund from the US, curtailed sales tax on petroleum products, and increase in development spending as elections mode is switched on, are prime reasons for the slippages in fiscal account.
The tax revenues are relatively in a better shape, although, full year targets still seem ambitious. Tax revenues grew by 6 percent year-on-year in 1HFY17 to Rs1.74 trillion. However, in terms of GDP it declined to 5.2 percent from 5.5 percent in 1HFY16.
Direct taxes increased by 8 percent year-on-year to reach Rs586 billion, while in terms of GDP it declined from 1.83 percent of GDP in 1HFY16 to 1.75 percent of GDP in 1HFY17. There is room for improvement for Dar and team, which they would surely exercise close to the financial year end.
Sales tax collection fell from 2 percent of GDP to 1.7 percent of GDP - in absolute terms the decline is 2 percent year-on-year. The prime reason for low sales tax collection is rationalization of GST on petroleum products and this trend may continue in the second half. Other indirect taxes, such as excise duty and customs duties are showing decent growth, but these will not be enough to make up for low sales tax collection.
The tax revenues target for FY17 is Rs3.96 trillion (11.8% of GDP); this implies that the collection has to be Rs2.2 trillion in the second half to meet target. This could be a tough task for the newly appointed FBR chairman; but seeing the performance in last year's second half, where collection was 6.8 percent of GDP, fetching another 6.6 percent of GDP could well be doable in 2HFY17.
Even if tax revenue target is met; non tax collection would not add up to meet the target of total revenues of Rs4.9 trillion (14.7% of GDP). To put in perspective, total revenues stood at Rs2.0 trillion (5.9% of GDP) in the first half. The need is to have 8.7 percent of GDP in 2HFY17 while the collection was 8.2 percent of GDP in the 2HFY16 which was a robust period.
The non tax revenues collection so far is mere Rs249 billion, exhibiting a decline of 32 percent year-on-year. In terms of GDP, it fell from 1.2 percent to 0.7 percent. There is no CSF money this year so far, while last year Pakistan fetched Rs78 billion in that respect. The other dent seems to have come from normalized SBP profits, which are down by 28 percent year-on-year to Rs87 billion in the 1HFY17. There is no way for the full year target of Rs960 billion for non tax revenues to be met.
There seems no policy measure from the Ministry of Finance to counter the situation. The tax revenues cannot grow beyond a certain stretched limit. Expenditures could only be curtailed via cut in development spending. With elections just one year away, PMLN might not be willing to compromise on PSDP disbursements.
To make the situation worse, the recent textile package and continuation of fertilizer subsidy may further deteriorate the fiscal balance. The total expenditure increased by 11 percent to Rs2.8 trillion (8.3% of GDP) in the first half. Within it, current expenditure is increased by 7 percent and the lions share is taken by development spending which shot up by 16 percent.
There are statistical discrepancies (unidentified expenditure) of Rs57 billion which would be added to either current or development expenditure in due time. The bottomline is that consolidated difference of expenditures and revenues stood at Rs799 billion or 2.4 percent of GDP. And that is what creates doubts when it comes to meeting the full year deficit target.
Comments
Comments are closed.