ISLAMABAD:
Pakistan’s per capita debt surged at a double-digit rate to nearly Rs 302,000 at the end of the last fiscal year and the government was also unable to limit the fiscal deficit to the prudent limit prescribed by law of Parliament, according to the new Budget Policy Statement on Tuesday.
The budget deficit in the last financial year exceeded the legal limit by more than double, or Rs 4,000 billion, according to the Fiscal Policy Statement-2025. Contrary to the legal requirement to limit the federal budget deficit to 3.5% of gross domestic product (GDP), the deficit soared to Rs7.3% of GDP, or Rs7.7 trillion. However, it is slightly above the budgetary objective.
According to the Ministry of Finance’s Fiscal Policy Statement for the National Assembly, the per capita debt burden increased from Rs 271,264 in FY 2023 to Rs 301,954 in FY 2024, i.e. increase of Rs 30,690 or 11.3%.
The law requires the federal government to submit the policy declaration to the National Assembly by the end of January with reasons for any violation of the Fiscal Responsibility and Debt Limitation Act of 2005. The Minister of Finance and the Secretary to Finance have certified the authenticity of the declaration. analysis and figures reported in the press release based on information available up to January 7.
This declaration is presented to the National Assembly to meet the requirements of Article 6 of the Fiscal Responsibility and Debt Limitation Act. The law stipulates that the federal government must have a budgetary policy statement tabled before the National Assembly before the end of January each year.
The federal government violated the fundamental principle of sound financial management by limiting the federal budget deficit to the legal limit. Ironically, when the Minister of Finance presented the budget in June 2023, he violated the law, since the federal deficit target had been set at 7.1% of GDP.
The government admitted before the National Assembly to having violated the law on budgetary responsibility and debt limitation by not respecting the legal requirement to limit the budget deficit to 3.5% of GDP for the 2024 financial year.
“Limit the federal budget deficit excluding foreign subsidies to 4% of GDP for three years, starting from the 2017-18 financial year and maintain it at a maximum of 3.5% of GDP thereafter,” it reads in Article 3 (a) of the FRDL. Act.
The total federal budget deficit remained at Rs7.7 trillion or 7.3% of GDP – Rs4 trillion or 3.8% of GDP above the legal limit, the report shows.
Total public debt also increased by almost 15% in the last fiscal year. It increased from Rs 62.9 trillion to Rs 72.3 trillion due to higher debt interest payments and the effect of exchange rate depreciation. But in terms of the size of the economy, total public debt decreased from 74.8% in June 2023 to 67.2% in June 2024.
The report said government spending also exceeded the budget forecast due to an increase in mark-up payments, which remained 11.7% higher than the budget forecast. But expenses excluding mark-ups remained within budgetary limits.
During the last fiscal year, the report said, inflation declined and there was a surplus in the primary fiscal balance, a negligible current account deficit and a stable exchange rate. The optimal mix of policies, particularly fiscal consolidation and targeted subsidies, played a vital role in reviving the economy, the document added.
But current spending reached 105.5% of the budget forecast, mainly due to increased mark-up payments due to high interest rates, the report said.
The budget for FY2024 estimated development expenditure at Rs 1.14 trillion, however, the actual expenditure decreased to Rs 1.03 trillion due to the PSDP cut of Rs 218 billion.
The Ministry of Finance report said total revenue recorded a slight deficit, which contributed to the actual federal budget deficit of 7.3% of GDP compared to the budget target of 7.1% of GDP.
