By Muskan Naveed ISLAMABAD, Nov 01 (INP-WealthPK): Lack of fiscal discipline has been one of the major problems of the Pakistani economy. Governments have been spending more than they have earned through taxes and, in turn, to finance their operations, they resort to heavy borrowing from domestic as well as external sources. The fiscal deficit amounted to 7% of the Gross Domestic Product (GDP) of Pakistan during the fiscal year 2019-2020. Why is fiscal discipline important? Overspending results in external and internal debt, while debt in itself is not bad, the Pakistani governments have been utilizing debt to finance the current expenditures of the government - which are recurring expenses with no returns - instead of spending borrowed money on development. Moreover, increased borrowing means that the economy cannot sustain itself and can possibly default on its loans. This leads to a decline in the credit rating of the country which negatively impacts future lending as well as investment in the country. Currently, Standard & Poor has ranked Pakistan’s long-term and short-term sovereign credit rating at B- and B respectively with a stable outlook. Credit ratings of B and B- fall in the highly speculative category and fall in the non-investment grade. Should Pakistan stop spending? The Covid-19 pandemic has altered the shape of the global economy. Decreased demand, increased risk, failing businesses and stock market crashes became rampant as countries shut down completely to contain the spread of the virus. While both the developing and developed worlds have been hit hard, in a time when developed countries’ healthcare systems were on the verge of collapse, countries like Pakistan stand to lose a lot. Hence, the government had to step up to support the masses. A monetary contribution of nearly 5% of the GDP of the country through Ehsaas cash transfer program was made towards the sustenance of the lower class. Increased spending on healthcare, purchase of vaccines and other equipment was crucial. Although Pakistan already has a widening fiscal deficit, the precarious situation of the global pandemic required a further increase in government’s spending. What is government doing for fiscal discipline? Pakistan passed the fiscal Responsibility and Debt Limitation Act of 2005 in order to ensure fiscal discipline. Under the act, mechanisms have been put in place to eliminate the fiscal deficit as well as limit public debt and maintain it. The fiscal deficit can be controlled either by lowering the government’s spending or increasing tax revenue. However, in the case of Pakistan, a contractionary fiscal policy – or decreased government spending – may prove to be detrimental to the economic health of the country. Hence, the tax collection needs to be targeted. Increasing tax collection has been one of the important agendas of the current government and the economy is seeing positive results already. The tax machinery is being rapidly restructured by the government and the tax collection has increased by 45% to Rs. 434 billion from Rs. 300 billion in August of last year. The Federal Board of Revenue (FBR) has also set an ambitious goal of raising Rs. 5.829 trillion in fiscal year 2022 and given the current performance, the goal can be accomplished. The taxation machinery can be further strengthened through the digitization of the economy. Many large retailers do not have a billing machine connected with FBR – an aspect that is quickly changing under a World Bank funded project for the upgradation of technology equipment. In short, things can be expected to change for the better. Pakistan had briefly achieved a current account surplus and with the dedication and commitment of the government, a fiscal deficit may also be achieved soon if efforts are continued in the right direction.