Govt revises growth estimate upward to nearly 3pc of GDP

ISLAMABAD: The federal cabinet has approved its budget strategy paper for the next fiscal year, envisaging 4.2 percent GDP growth, six percent fiscal deficit and revised upward GDP growth for the current fiscal year to 2.9 percent and fiscal deficit to 7.9 percent.

Sources told Business Recorder that the 2.1 percent estimated GDP growth in the budget for the current fiscal year has now been revised upward to 2.9 percent and fiscal deficit to 7.9 percent in the medium-term budget strategy paper 2021-22 to 2023-24 approved by the federal cabinet.

The meeting of the federal cabinet presided over by Prime Minister Imran Khan has approved the Medium-Term Budget Strategy Paper 2021-22 to 2023-24, which was presented to it by the Finance Ministry on Tuesday.

Inflation has been targeted at eight percent for the next fiscal year, exports at $25.7 billion, imports at $51.4 billion, and current account (C/A) deficit is estimated at 4.7 percent of the GDP for the next fiscal year.

The government has projected Rs3,105 billion interest payment for the next fiscal year in the budget strategy paper, Rs1,330 for defense services, Rs510 billion running of civil government, Rs480 billion pension, Rs501 billion for subsidies, and Rs994 billion grants.

The major expenditure priorities of the federal government for the medium-term will be as under: (a) sustainable growth; (b) protection of vulnerable segments – Ehsaas; (c) inflation and price control; (d) enhancing development spending – job creation (PSDP); (e) minimal increase in current spending – Non-ERE frozen; (f) PM’s Initiatives – Housing and Kamyab Jawan; (g) impact mitigation of Covid-19; (h) circular debt financing and power subsidies; (i) harmonization of pay and allowances; (j) reduction of twin deficits; and (k) building forex reserves.

Ministries/divisions-wise level of current spending would be linked with the achievement of targets and goals set out under the performance agreements between the prime minister and the Cabinet members.

Over the years, the government spending on running of civil government and pension spending has increased.

In order to break this trend, the government is working on reducing non-development expenditures as a proportion of the budget and bringing reforms in the pension payment system to rationalise the pension cost.

The federal cabinet was told that the level and composition of public debt inherited by the present government was not sustainable.

The government’s medium-term debt sustainability strategy includes reduction of fiscal deficit, gradually shifting towards long-term debt maturity profile, zero borrowing from the State Bank of Pakistan, accessing concessional external loans and discouraging foreign commercial borrowings.

In the medium-term, public debt-to-GDP ratio would be gradually reduced.

Over the medium-term, the government’s objective is to bring and maintain its public debt-to-GDP ratio to sustainable levels through a combination of greater revenue mobilisation, rationalisation of current expenditure and efficient/productive utilisation of debt.

The government also aims to reduce its “Gross Financing Needs (GFN)” through various measures, mainly including: (i) better cash flow management through a treasury single account; (ii) lengthening of maturities in the domestic market keeping in view cost and risks trade-off; (iii) developing regular Islamic-based borrowing programme; and (iv) availing maximum levels of concessional external financing from bilateral and multilateral development partners to benefit from concessional terms and conditions.

The major fiscal challenge being faced by the federal government since introduction of the 18th Constitutional Amendment and 7th NFC Award is transfer of 57.5 percent of divisible pool taxes and the straight transfers to the provinces, constituting almost 59.7 percent of the gross federal revenues, which leaves very limited fiscal space for current and development spending.

In order to attain the projected overall fiscal balance, the provinces will be required to have the desired levels of provincial surpluses by increasing their own revenues and rationalising the expenditures, the meeting was informed.

The meeting was also informed that the investment to GDP ratio is expected to improve significantly in the medium term. Correcting the fundamentals of the economy through effective policy making and targeted reforms are aim at achieving a sustainable and inclusive growth trajectory.

These measures have established and strengthened the economy, which is not only becoming self-reliant but is also capable of competing globally.

Business confidence is improving. Further, the current efforts to enhance the ease of doing business will help in significantly improving investment-to-GDP ratio over the medium term. While briefing the media after the cabinet meeting, Minister for Science and Technology Fawad Chaudhary said the federal cabinet has approved medium-term budget strategy paper 2021-22 to 2023-24.

Copyright Business Recorder, 2021