HomeHot NewsDefense and interest costs totaled Rs. 2.2 trillion

Defense and interest costs totaled Rs. 2.2 trillion

Only two budget categories—debt interest and defense—used up a staggering Rs2.2 trillion in the first five months of this fiscal year, which was even more than the entire federal government’s net income. As a result, other expenses had to be drastically reduced.

The interest rate on the Rs50 trillion stock of federal debt increased alarmingly by 83% between July and November of the current fiscal year. According to the sources, the Ministry of Finance paid nearly Rs1.7 trillion in interest costs, an increase of Rs763 billion or 83%. Similar to this, Rs517 billion was spent on defense in five months, excluding costs for military pensions and the armed forces development program. According to the sources, it was Rs112 billion, or nearly 28% more than the prior fiscal year.

Defense and debt service costs combined remained at Rs2.2 trillion, or 107% of the federal government’s net income. Following the payment of the provinces’ shares under the National Finance Commission award, the federal government’s net income was Rs2.04 trillion.

The Finance Ministry remained silent at this point. The country is unable to resolve its debt trap or its security situation, which is once again deteriorating rapidly as a result of the state’s flawed policies, despite spending all of its net earnings on just two budget lines.

In the absence of an International Monetary Fund (IMF) safety net and any significant cash assistance from bilateral creditors, the likelihood of a sovereign default is very high.

Only Rs119 billion was spent on development in comparison to huge expenditures of Rs2.2 trillion on debt repayment and defense. The amount spent on development is down by Rs133 billion, or 53%, from the prior fiscal year.

The total amount of the federal government’s other expenses, which were all reduced by Rs160 billion or 12%, was Rs1.15 trillion. The government will miss the annual primary budget deficit target set with the IMF due to unchecked spending on debt servicing and significant slippages against the annual circular debt reduction plan.

Because of unchecked spending on debt servicing, the federal budget deficit increased to over Rs1.43 trillion in the first five months of the current fiscal year. This is because current expenditures increased faster than gross revenues. The difference between expenditures and revenues, or the federal budget deficit, was 1.7% of the GDP. Due to the inflated size of the economy brought on by a 25% inflation rate, the deficit in nominal terms was low compared to last year.

A primary surplus of Rs251 billion, or 0.3% of the GDP, was recorded by the federal government. The federal government’s overall spending increased to Rs3.46 trillion during the current fiscal year, up 20% or Rs570 billion from the same time last year. However, the federal government’s current spending increased to almost Rs3.35 trillion. The current expenses have increased 27%, or Rs704 billion, from the same time last year. Just two categories—loan interest payments and defense—accounted for 63% of total spending from July through November of the current fiscal year. Due to this, very little money was left over to be used for the nation’s welfare and development.

Under the terms of the IMF program, Pakistan has agreed to reduce its primary deficit from 3.6% of GDP in the previous fiscal year to 0.2% of GDP after excluding interest payments.

The World Bank, however, warned that the floods could cause the country to experience another primary deficit of 3% of GDP in the current fiscal year in its Post Disaster Need Assessment (PDNA) report. The federal government’s gross receipts increased to Rs3.55 trillion, up Rs716 billion or 25%. As its share of federal taxes, the federal government gave the provinces Rs1.5 trillion, a 12% increase over the previous year.

The Federal Board of Revenue’s (FBR) tax collection for the first five months remained at Rs2.69 trillion, up Rs373 billion or 16%. But the FBR is likely to fall far short of its goal for December.

A higher collection of the petroleum levy led to an increase in non-tax revenues of Rs245 billion, or 40%, to reach Rs864 billion.

The overall deficit of the nation was Rs1.25 trillion, or 1.5% of GDP, after taking into account the cash surplus of Rs175 billion attained by the provincial governments. A total of Rs425 billion, or 0.5% of the GDP, made up the primary balance.

Read: On Wednesday, the Cabinet will consider the Toshakhana report

However, moving forward, the federal government will face significant challenges in maintaining this trend because of a decline in revenues and higher seasonal expenses, which begin to soar in December and peak in June.

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