The former PDM government wrapped up the fiscal year 2022-23 with a fiscal deficit of 7.7% of the GDP, a noticeable departure from their initial claim of 7%. According to the Ministry of Finance’s Fiscal Operations Data, the deficit amounted to Rs6.521 trillion for FY23, a discrepancy of roughly Rs580 billion from the government’s prior projection. The primary deficit for FY23, representing the difference between income and expenditure sans interest payments, was also higher than anticipated at 0.8% of GDP or Rs690bn, compared to the projected 0.5% of GDP or Rs421bn.
Contributing Factors and Comparisons
Several factors exacerbated the fiscal slippages. Provincial governments fell short by Rs304bn of their promised Rs459bn cash surplus, adding to the fiscal pressures. The federal government, however, was also to blame, accounting for an additional shortfall of approximately Rs385bn. For perspective, the preceding PTI government ended their last fiscal year (FY22) with a fiscal deficit of 7.9% of GDP and a much higher primary deficit of 3.1% or Rs2.077tr. The rapid 83% hike in debt servicing costs within a year, soaring from 4.8% of GDP in FY22 to 6.9% in FY23, underlined major economic challenges faced by the nation.
Revenue and Expenditure Trends
Defence spending grew by 12% within a year, although it was less pronounced about the inflation rate. The revenue-to-GDP ratio shrunk from 12% in FY22 (under PTI’s reign) to 11.4% in FY23 (under the PDM government). Concurrently, the tax revenue to GDP ratio dropped from 10.1% to 9.2%. One bright spot was the growth in non-tax revenue, which rose by 42% due largely to the Rs580bn garnered from the petroleum levy in FY23. Overall, total revenue rose by 20% to Rs9.634tr in FY23, with federal tax revenue seeing a 17% hike. Yet, these gains were overshadowed by a staggering 29% inflation rate for the year and a 22% rise in total expenditure. The government leaned heavily on domestic borrowing to bridge the fiscal gap, amounting to Rs7.2tr in FY23.
