The government's budgetary spending during the first quarter of the current fiscal year (2016-17) has increased by three per cent of the GDP while tax collection remained considerably slow during the aforementioned period. According to Fiscal Policy Statement 2016-17 of Debt Policy Co-ordination Office, the total expenditure grew with a slower pace and stood at Rs 1,300 billion, which resulted in a fiscal deficit of 1.3 per cent of GDP, slightly up from 1.1 per cent recorded in the first quarter of the last fiscal year.
A copy of the fiscal policy statement available with Business Recorder was obtained from Debt Co-ordination Office, which has submitted it to the National Assembly Secretariat to present it in the House. However, the copy has not so far been placed on agenda of the Lower House for placing it in the Parliament.
According to the fiscal policy statement, the consolidated provincial expenditure grew by 13.3 per cent in 2015-16. This increase, visible both in current as well as development expenditures, was attributed to multiple factors such as: (i) Punjab's current expenditure which reflects higher storage and interest expenses associated with wheat procurement programme of the Punjab Food Department; (ii) Punjab's development spending for economic affairs segment increased further in 201 5-1 6, which mainly represents initiation of construction and transport projects in the province; (iii) and local bodies' elections in Sindh during 2015-16 increased its spending on general public services during the year.
The development expenditure was driven by provincial governments which for the first time overtook federal spending. Provincial governments spent 37 per cent more during first quarter of 2016-17 as compared to the last year. Going forward, the government is committed to expanding revenues and curtailing the current expenditure with effective management of financial resources, according to the statement.
Net lending and development expenditure comprised 4.4 per cent of total GDP compared with 4.2 per cent recorded last year with expenditure and net lending increased to Rs 1,314 billion in 2015-16 from Rs 1,141 billion last year, showing a growth of 15 per cent.
This growth was mainly led by a 20 per cent growth in PSDP. Development expenditure and net lending constituted around 23 per cent of the total expenditure during 2015-16 and constituted around 96 per cent against the budget target of Rs 1,370 billion. Going forward, the government needs to invest more resources towards the targeted development expenditure in the wake of the current socio-economic environment which will contribute in economic growth.
Total revenue witnessed a decline of 8 per cent and was recorded at Rs 862 billion as compared to Rs 937 billion last year. While tax collections remained slow non-tax witnessed decline. The government initiated reforms on the revenue side which may not be fruitful in the short run, but will bring long-term benefits to the overall structure going forward. Tax revenue grew by 2 per cent in the first quarter of 2016-17 with the comparable period of the last year. However, tax revenue as a percentage of GDP stood at 2.2 per cent as compared to 2.4 per cent in the comparable period last year to stand at Rs 739 billion. The FBR collections, which form major tax collection proportion, were low mainly owing to (i) reduced corporate rate by 1 per cent; (ii) exemptions in taxes on green field industrial undertakings; (iii) increase in tax credits for employment generation; (iv) the government's decision to keep POL prices unchanged; (v) and decline in production of cigarettes following increase in excise duty. These measures may have adverse implications in the short run but they are expected to contributing favourably by stimulating economic growth and increasing the size of the overall tax base going forward.
Non-tax revenue fell by 42 per cent and stood at Rs 123 billion in the first quarter of 2016-17. This was mainly due to absence of Coalition Support Fund and lower profits received from State Bank of Pakistan. Furthermore, dividends from Public Sector Enterprises (PSEs) also declined.
Provincial governments showed a better fiscal performance during 2015-16 to post healthy surplus of Rs 207 billion compared with Rs 87 billion last year, by keeping expenditure under control. On the revenue side, the tax collections improved significantly, while the dependence on federal resources remained intact.
Provincial taxes posted a significant growth of 38 per cent during 2015-16. Major revenue came from General Sales Tax (GST) collected on services, in which Punjab and Sindh registered notable improvements. Sindh, which has wider taxable services available like shipping and ports, has been able to exceed its annual revenue target.
Punjab showed improvement in other collections especially from stamp duties while KPK missed its annual target due to difficult law and order situation in the province, and the continuation of the operation Zarb-e-Azb in adjacent parts of the province.
In broader terms, the sector-wise breakdown of expenditures is similar across provinces, while general public services constitute the bulk of current expenditure. In most provinces, economic affairs segment dominates their development progress. However, some variations also exist within development expenditure, eg Punjab's emphasis on economic affairs segment (particularly construction and transport) is quite prominent, whereas KPK's development spending was almost similar in each segment.
The implementation of the government's multifaceted reforms for revival of Public Sector Enterprises (PSEs) is based on a number of pillars, which include divestment through strategic partnership and public offerings, strengthening enforcement of corporate governance rules, implementation of restructuring plans and regulatory reforms. Transactions included the sate of minority shareholding in United Bank Limited, Allied Bank Limited, Habib Bank Limited.
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