Depressing FY2018-19

Just when one thought the FY2018-19 had ended and the focus should exclusively turn to the new year, some new information about its performance emerges that pales all previous shocks. The fiscal operations data released by the Ministry of Finance a few days ago has left many in complete awe. It looks there was nobody minding the shop.
It was evident at the time of the revised budget that a disorder has gripped the economic management. Against an original target of Rs 5.7 trillion for gross revenue receipts, the revised target was down to only Rs 5.0 trillion, shaving off nearly 2% of GDP worth of revenue receipts. The actual has come out to be Rs 4.1 trillion, a reduction of 28% from the original budget and 18% from the revised budget. Compared to Rs 4.7 trillion in 2017-18, it was down by nearly 13%. This has not happened before. The primary reason is the FBR tax collections. Against an original target of Rs 4.4 trillion for FBR collections, the revised target was down to only Rs 4.15 trillion, reducing some 6% of revenue receipts. The actual has come out to be Rs 3.8 trillion, a reduction of 14% from the original budget and 8% from the revised budget. Compared to Rs 3.867 trillion in 2017-18, it was down by nearly 1%. So we have the first ever when the collections were down relative to previous year.
This is not all. We have done even more poorly, relatively speaking, on the non-tax revenues (NTR). In the budget, NTR receipts were shown at Rs 772 billion, which were reduced to Rs 638 billion in the revised budget, a 17% reduction. The actual number is an astonishing Rs 364 billion, which is 53% less than the original target and 43% less than the revised target. Compared to Rs 630 billion in 2017-18, it was down by 42%. Again, it is hard to find another year when such a massive reduction in NTR was observed.
The most significant reduction has come in SBP profits, which have magically vanished. The original budget target for SBP profits was Rs 280 billion which was reduced to Rs 147 billion in the revised budget. The actual has come out at mere Rs 12.5 billion. This is a jaw-dropping outcome. It has never happened in the past. Clearly, this has to do with the exchange losses suffered by the bank. But most curiously, the fiscal operation until Jul-Mar had shown an actual receipt of Rs 138 billion, whereas the revised estimate of Rs 147 was drawn in mid-June at the time of the budget, so how it was dawned on authorities, in the closing days of the fiscal year, that not only the target would not be met but the amount remitted to government would have to be withdrawn.
There are surprises on the capital receipts also. Net capital receipts (domestic loans) were budgeted at Rs 443 billion but massively revised upward, in view of revenue shortages, to Rs 1 trillion. The actual has come at a staggering Rs 3.22 trillion. Net foreign loans were budgeted at Rs 478 billion and then reduced to Rs 425 billion in the revised estimates. The actual has come at Rs 417 billion, which is close to the revised estimates.
On the provincial surplus side, things were bad as many had expected. The surplus was budgeted at Rs 286 billion but was massively reduced to Rs 59 billion in the revised estimates. Mercifully, the actual has been recorded at Rs 138 billion. This was a windfall that limited the deficit to under 9% which it would have been otherwise. There is also a caveat or two to understand here. In all likelihood, this was the result of tax revenue transfers on the last day of June (which is the normal practice). The provinces didn't get an opportunity to spend them. Also, the provincial governments, especially Punjab, were slow to spend and thus there was room to build up surplus. Punjab contributed Rs 122 billion out of Rs 138 billion.
On the expenditure side, total expenditures were budgeted at Rs 5.9 trillion which were increased to Rs 6.4 trillion in the revised budget. The actual has come at Rs 5.6 trillion. So there is some saving in the overall expenditures relative to the original budget. The current expenditure was budgeted at Rs 4.2 trillion which was revised upward to Rs 4.7 trillion. The actual has come at Rs 4.8 trillion. The biggest over-run is in debt servicing. Originally, interest payments were budgeted at Rs 1,620 billion, which were raised to Rs 1,987 billion in the revised budget. The actual have come out at around Rs 2,100 billion, an over-run of Rs 480 billion compared to the original and Rs 113 billion from the revised budget. The defense expenditure was budget at Rs 1,100 billion but was revised to Rs 1,137. The actual is at Rs 1,146, which is not a major over-run. It seems that compared to budget estimates there is not much increase in the current expenditure in heads other than interest payments.
The development expenditure was originally budgeted at Rs 800 billion and was scaled back to Rs 500 billion in the revised estimates. Actual has come out at Rs 562 billion including development grants to provinces of Rs 60 billion. Development expenditure outside PSDP (BISP etc.) was budgeted at Rs 180 and revised to Rs 163 billion and actual was Rs 170 billion. So compared to the original budget, significant cuts were applied on the development side.
We finally look at the fiscal deficit and its financing. The deficit was budgeted at 4.9% or Rs 1,891 billion which was raised to 7.2% or Rs 2,779 billion. The actual has come out at 8.9% or Rs 3,435. Compared to the original, we have incurred an additional deficit of 4% or Rs 1,544 billion. As we noted at the outset, the gross revenue receipts were down by Rs 1,600 billion. After accounting for shortfall in provincial surplus and savings in overall expenditures (and rounding offs), we find the entire deficit was on account of revenue shortfall both in tax as well as non-tax receipts. This most unhelpful as all this deficit would go to swell the primary deficit, which stood at 3.5% compared to IMF assessment of 1.8%.
On the financing side, a whopping Rs 2,455 billion was financed through borrowing from the central bank and Rs 763 billion from national savings, which is unprecedented also. Provincial surplus was Rs 138 billion. Net external financing was Rs 417 billion. The share of domestic financing, therefore, was nearly 88%.
These results are quite disheartening. It is difficult to believe if anybody was watching with concern as this situation was unfolding. The state of fiscal affairs is not such that it suddenly emerges on managers' faces after two months of the close of the fiscal year. The financing data is appearing on a daily basis and even revenues and expenditures are available within few days of the closing of each month, though in a large measure, they are available to selected officials on a daily basis. This state is reflective of a deep malice afflicting fiscal management, which has to be addressed before any meaningful hopes of economic revival can be developed.
Under the circumstances, it looks difficult to successfully conclude even the first review with the IMF. The base-line data shared with the Fund is grossly out of line with the actuals. The extra adjustment in primary deficit (to achieve 0.6% of GDP) is nearly of the order of 2% of GDP. A tax target of Rs 5,500 billion is monumental and to expect any further revision would be an impossible task. Independent economists are warning that to push the economy for the present tax target would further slow it down and make it harder to achieve reasonable growth in revenues.
(The writer is former finance secretary)
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