ISLAMABAD: Pakistan's cash-strapped government has highlighted nearly a dozen key risks to next year's budget and medium-term outlook, including lower than projected economic growth, unexpected climate or natural disasters as well as the state's This includes the continued poor performance of owned entities.
In a written statement on fiscal risks submitted to Parliament, Finance Minister Muhammad Aurangzeb and Secretary Imdadullah Bosal said the combination of three risks – higher than projected interest rates, lower non-tax revenue collections and higher subsidies – had the most significant impact. . on fiscal variables across the board.
"Shortfall in revenues, increased expenditure on subsidies and potential financing requirements due to higher interest rates result in a substantial fiscal deficit and higher debt stock," Dawn newspaper quoted the statement as saying on Monday. It highlighted the interrelationship of fiscal policy and fiscal policy. Underlined the need for a comprehensive approach to deal with the challenges.These risks are significant because Pakistan's Federal Board of Revenue for the next fiscal year has a record revenue target of Rs 12.97 trillion, 40 percent more than the target of Rs 9.415 trillion during this period, besides a huge sum of Rs 2.5 trillion from the state. are supposed to. Bank of Pakistan's profit
However, both the technical and bureaucratic heads of the Finance Ministry do not consider the current political situation and the weak coalition government as any threat to the fiscal and economic plans of the newly formed federal and provincial governments following the controversial 8 February general elections. Jailed former Pakistan Prime Minister Imran Khan's Pakistan Tehreek-e-Insaf party has rejected the election results as rigged.
The statement said any increase in interest rates on external and domestic debt could lead to an increase in federal expenditure and, subsequently, the federal fiscal deficit and the total debt of the government.
“If this possibility is realized, the overall impact will be substantial without additional measures."Based on current estimates, the federal fiscal deficit for the next year is estimated at Rs 8.5 trillion or about 6.9 per cent of GDP. The statement said the significant shortfall in non-tax revenue collections will also lead to a decline in net federal revenues. There could be a significant shortfall and this could result in an increase in the fiscal deficit.
“Additionally, higher deficits contribute to an increase in the debt stock over the forecast period.”
While the government has set a target of more than Rs 1.363 trillion for the next fiscal year, the ministry said the increase in subsidies leads to increased expenditure, and the impact on the fiscal deficit and debt stock is relatively limited. The higher subsidies target sectors or programmes. But "it could also put pressure on government finances if not accompanied by revenue measures or expenditure controls".Talking about fiscal risks arising from lower GDP growth, the statement said it envisages reducing the projected GDP growth rate by a quarter in each fiscal year over the medium-term budgetary framework.
"While this scenario does not directly impact fiscal policy measures, it has implications for revenue generation and expenditure planning," according to the statement, explaining that net federal revenues will be lower due to weaker economic activity than lower GDP growth rates. As a result, there is pressure on fiscal deficit and debt accumulation, as the government may need to maintain or increase expenditure to stimulate growth amid low economic performance, the statement said.
Furthermore, the ministry warned that a larger-than-expected depreciation of the rupee would significantly impact fiscal stability due to an increase in the cost of servicing foreign debt, as repayments and interest on foreign-denominated loans would become more expensive in local currency terms.
Additionally, a weaker rupee could increase import costs, increase inflation and put pressure on public expenditure, especially if subsidies on essential commodities like fuel and food are implemented.As a result, the combined effect of these factors could widen the fiscal deficit and increase the debt burden, thereby exacerbating fiscal vulnerabilities.
Furthermore, the statement said the accelerating impacts of climate change have added "a new layer of pressure" on the economy, including the external shock of severe climate disasters, which could impose a significant hit on GDP in 2022, including It said rising inflation, high indebtedness, low growth, currency devaluation and declining foreign exchange reserves have increased the scale and multiplicity of the challenges.
It also notes that stringent climate change mitigation could significantly increase government expenditure and, as a result, increase the federal fiscal deficit. Pakistan, in 2022, was hit by devastating floods, leaving one-third of the country under water. It affected 33 million people, half of whom were children, and killed 1,739.
Total damage from the devastating floods is estimated at ₹3.2 trillion (US$14.9 billion), with total losses amounting to ₹3.3 trillion (US$15.2 billion).Recalling the 2022 floods and the vulnerabilities created by this disaster, the statement called for the creation of a “Natural Disaster Fund (NDF)” to help mitigate the fiscal deficit at least to some extent.Finance Minister also highlighted the risks posed by poorly performing state-ownership
Institutions that cause a loss of approximately Rs 1 trillion to the exchequer annually.
The Finance Ministry also emphasized stable macroeconomic policies to prevent excessive exchange rate fluctuations and attract long-term investment, contributing to overall economic resilience and reducing fiscal risk, as well as against exchange rate volatility. Accumulated foreign exchange reserves for financial support.Pakistan's economy is currently facing a serious economic crisis, with the country facing a cash crunch after the IMF approved a stand-by arrangement of USD 3 billion in July last year. Managed to avert loan default.
The Pakistan government is currently in talks with the International Monetary Fund for a loan estimated at between USD 6 billion to USD 8 billion, as it attempts to prevent default in the slowing economy.
In a written statement on fiscal risks submitted to Parliament, Finance Minister Muhammad Aurangzeb and Secretary Imdadullah Bosal said the combination of three risks – higher than projected interest rates, lower non-tax revenue collections and higher subsidies – had the most significant impact. . on fiscal variables across the board.
"Shortfall in revenues, increased expenditure on subsidies and potential financing requirements due to higher interest rates result in a substantial fiscal deficit and higher debt stock," Dawn newspaper quoted the statement as saying on Monday. It highlighted the interrelationship of fiscal policy and fiscal policy. Underlined the need for a comprehensive approach to deal with the challenges.These risks are significant because Pakistan's Federal Board of Revenue for the next fiscal year has a record revenue target of Rs 12.97 trillion, 40 percent more than the target of Rs 9.415 trillion during this period, besides a huge sum of Rs 2.5 trillion from the state. are supposed to. Bank of Pakistan's profit
However, both the technical and bureaucratic heads of the Finance Ministry do not consider the current political situation and the weak coalition government as any threat to the fiscal and economic plans of the newly formed federal and provincial governments following the controversial 8 February general elections. Jailed former Pakistan Prime Minister Imran Khan's Pakistan Tehreek-e-Insaf party has rejected the election results as rigged.
The statement said any increase in interest rates on external and domestic debt could lead to an increase in federal expenditure and, subsequently, the federal fiscal deficit and the total debt of the government.
“If this possibility is realized, the overall impact will be substantial without additional measures."Based on current estimates, the federal fiscal deficit for the next year is estimated at Rs 8.5 trillion or about 6.9 per cent of GDP. The statement said the significant shortfall in non-tax revenue collections will also lead to a decline in net federal revenues. There could be a significant shortfall and this could result in an increase in the fiscal deficit.
“Additionally, higher deficits contribute to an increase in the debt stock over the forecast period.”
While the government has set a target of more than Rs 1.363 trillion for the next fiscal year, the ministry said the increase in subsidies leads to increased expenditure, and the impact on the fiscal deficit and debt stock is relatively limited. The higher subsidies target sectors or programmes. But "it could also put pressure on government finances if not accompanied by revenue measures or expenditure controls".Talking about fiscal risks arising from lower GDP growth, the statement said it envisages reducing the projected GDP growth rate by a quarter in each fiscal year over the medium-term budgetary framework.
"While this scenario does not directly impact fiscal policy measures, it has implications for revenue generation and expenditure planning," according to the statement, explaining that net federal revenues will be lower due to weaker economic activity than lower GDP growth rates. As a result, there is pressure on fiscal deficit and debt accumulation, as the government may need to maintain or increase expenditure to stimulate growth amid low economic performance, the statement said.
Furthermore, the ministry warned that a larger-than-expected depreciation of the rupee would significantly impact fiscal stability due to an increase in the cost of servicing foreign debt, as repayments and interest on foreign-denominated loans would become more expensive in local currency terms.
Additionally, a weaker rupee could increase import costs, increase inflation and put pressure on public expenditure, especially if subsidies on essential commodities like fuel and food are implemented.As a result, the combined effect of these factors could widen the fiscal deficit and increase the debt burden, thereby exacerbating fiscal vulnerabilities.
Furthermore, the statement said the accelerating impacts of climate change have added "a new layer of pressure" on the economy, including the external shock of severe climate disasters, which could impose a significant hit on GDP in 2022, including It said rising inflation, high indebtedness, low growth, currency devaluation and declining foreign exchange reserves have increased the scale and multiplicity of the challenges.
It also notes that stringent climate change mitigation could significantly increase government expenditure and, as a result, increase the federal fiscal deficit. Pakistan, in 2022, was hit by devastating floods, leaving one-third of the country under water. It affected 33 million people, half of whom were children, and killed 1,739.
Total damage from the devastating floods is estimated at ₹3.2 trillion (US$14.9 billion), with total losses amounting to ₹3.3 trillion (US$15.2 billion).Recalling the 2022 floods and the vulnerabilities created by this disaster, the statement called for the creation of a “Natural Disaster Fund (NDF)” to help mitigate the fiscal deficit at least to some extent.Finance Minister also highlighted the risks posed by poorly performing state-ownership
Institutions that cause a loss of approximately Rs 1 trillion to the exchequer annually.
The Finance Ministry also emphasized stable macroeconomic policies to prevent excessive exchange rate fluctuations and attract long-term investment, contributing to overall economic resilience and reducing fiscal risk, as well as against exchange rate volatility. Accumulated foreign exchange reserves for financial support.Pakistan's economy is currently facing a serious economic crisis, with the country facing a cash crunch after the IMF approved a stand-by arrangement of USD 3 billion in July last year. Managed to avert loan default.
The Pakistan government is currently in talks with the International Monetary Fund for a loan estimated at between USD 6 billion to USD 8 billion, as it attempts to prevent default in the slowing economy.
