Qudsia Bano

 Pakistan's fiscal outlook is facing significant challenges as the deficit widens during the first seven months of the ongoing fiscal year 2023-24 despite efforts to bolster revenues and control expenditures. Expert analysis suggests a delicate balancing act is required to navigate through the economic turbulence. From July to January FY24, there was a notable surge in net federal revenues, attributed to both tax and non-tax collection. Particularly noteworthy was the substantial increase in tax collection by the Federal Board of Revenue, especially from domestic sources. This surge underscores improvements in tax compliance, enforcement and overall economic activity. However, this positive revenue trend was counterbalanced by escalating expenditures, primarily driven by higher markup spending, which accentuated the challenges posed by debt servicing obligations. Consequently, the fiscal deficit widened by a staggering 38% during the first seven months of FY24.

“The widening fiscal deficit signals persistent pressure on public finances, necessitating a prudent approach to fiscal management,” said Dr Ahmed Faraz, an economist at the Pakistan Institute of Development Economics. “While revenue enhancement efforts are commendable, addressing expenditure patterns, particularly debt servicing obligations, remains a critical priority.” “On a more optimistic note, measures to control non-mark-up expenditures yielded positive results, leading to a further increase in the primary surplus during the period under review. However, despite this improvement, the widening fiscal deficit highlights the ongoing challenges in maintaining fiscal sustainability,” he pointed out.

“To counter these fiscal challenges, the government is strengthening fiscal discipline through a combination of austerity measures and revenue mobilisation efforts,” said Dr Sajid Amin, Deputy Executive Director at Sustainable Development Policy Institute. “The overarching objective is to ensure that the fiscal deficit remains within manageable limits, thereby safeguarding fiscal sustainability and promoting economic stability,” he added. Sajid emphasised that the government must adopt a multifaceted approach to address the underlying challenges. While the significant increase in tax collection demonstrates commendable progress in revenue mobilisation, sustained efforts are required to curtail escalating expenditures, particularly those related to debt-servicing obligations. By striking a careful balance between revenue generation and expenditure control, Pakistan can pave the way for a more resilient and stable economic future.

Credit: INP-WealthPk