ISLAMABAD: The government cost of borrowing and mark-up payments increased in the fiscal year 2022-23 consequent to an increase in the policy rate in response to inflation.

This was stated by the Budget Wing and Economic Adviser Wing (EAW) of the Finance Division in its Fiscal Policy Statement-January 2024 which was presented in the National Assembly on Thursday.

It added that the fiscal year 2023 has been unprecedented due to multiple challenges such as the international commodity super-cycle and balance of payments crisis, whereas, flood 2022 further intensified the macroeconomic vulnerabilities.

Jul-Mar borrowing stands at $6.899bn

In response to high inflation, the State Bank of Pakistan (SBP)’s Monetary Policy Committee (MPC) increased the policy rate by a cumulative 825 basis points to 22 percent during the fiscal year 2023.

Consequently, the borrowing cost of the government increased, reflecting increases expenditure on mark-up payments.

The expenditure on mark-up payments was Rs5,696 billion in fiscal year 2022-23 against Rs3,950 billion estimated in the budget.

Similarly, budget estimates of subsidies were Rs664 billion with Rs535 billion for the power sector for the fiscal year 2023, the actual expenditure for the provision of subsidies remained at Rs1,080.3 billion.

These include Rs870.3 billion for the power sector against budgetary estimates of Rs535 billion, Rs100.6 billion for petroleum against Rs65 billion estimated in the budget, and Rs69 billion under other heads against Rs23 billion estimated in the budget.

In the analysis of the fiscal year, the budget and economic advisor wings stated that the fiscal year 2023 witnessed enormous floods, resulting in negative growth (0-17 percent) and the total federal fiscal deficit remained higher than the budget target of 5.8 percent.

The deterioration in the overall balance was, however, on account of higher interest payments that kept the growth in current expenditure higher than the growth in revenue.

Two factors, shortfall in revenue collection and higher mark-up payments contributed to the actual federal fiscal deficit of 7.9 percent during fiscal year 2023.

The main contributing factors that led to a rise in the fiscal deficit are beyond the control of the federal government which include the sharp rise in interest rate and exchange rate depreciation.

The policy statement added that Medium-Term Strategy Paper for the fiscal year 2023-24 to 2025-26 lays down the path of economic priorities and the fiscal strategy for the fiscal year 2024 emphasised a sustainable approach focusing on optimal revenue mobilization, expenditure rationalization and addressing the macroeconomic indicators.

The Medium-Term Framework provides a road map, outlining the government priorities and objectives for the next few years and strategic priorities also include implementing measures to achieve fiscal sustainability.

It further noted that it is essential for the government to remain vigilant and adaptive to evolving economic conditions, especially considering the uncertainties and global challenges.

The commitment to sound fiscal management, as outlined in the Fiscal Responsibility and Debt Limitation Act, 2005, will remain a priority in navigating the path towards economic stability, reducing deficits and managing public debt effectively.

Copyright Business Recorder, 2024