Karim Madad

The fiscal year 2022 witnessed a strong growth in tax collection, but an unprecedented rise in expenditures significantly hampered the consolidation efforts, according to a report of the Finance Ministry.

Fiscal deficit widened by 55% in FY22. In terms of gross domestic product (GDP), it increased to 7.9% (Rs5.26 trillion) in FY22 against 6.1% (Rs3.403 trillion) in FY21, the report shows.

Similarly, it added that the primary balance posted a deficit of Rs2.077 trillion (-3.1% of GDP) against the deficit of Rs654 billion (-1.2% of GDP). With a growing fiscal deficit, the total financing requirements in FY22 grew by 55%.

The report added that the domestic and external resources fetched Rs4.081 trillion and Rs1.178 trillion, respectively.

Within total domestic resources, financing from banks stood at Rs3.101 trillion, and non-bank financing stood at Rs981 billion. The total revenue increased by 16.4% to Rs8.035 trillion in FY22, up from Rs6.903 trillion in the previous year.

“In total, tax revenues grew by 28%, while non-tax collection on the other hand fell by 21% in FY22,” the report said.

It further said that the total expenditure increased by 29% to Rs13.295 trillion in FY22 against Rs10.307 trillion in FY21.

“Within the total expenditures, current spending grew by 27%, while development expenditures and net lending increased by 26%,” the report said. Growth in current expenditures is largely attributed to a 32% rise in non-markup spending, while mark-up payments grew by 16%. Within non-markup expenditures, subsidies and grants witnessed a sharp rise.

The Public Sector Development Program (PSDP) expenditures (federal and provincial) increased by 34% owing to a significant increase in provincial development spending. 

The report added that during FY22, money supply (M2) witnessed an expansion of Rs3.283 trillion as compared to an expansion of Rs3.389 trillion in FY21.

On the assets side, net foreign assets (NFA) decreased by 1.481 trillion as compared to an expansion of Rs1.240 trillion in FY21. The NFA reduction in FY22 reflects pressure on the external front owing to deterioration in the current account deficit.  On the other hand, net domestic assets witnessed an expansion of Rs4.764 trillion against an expansion of Rs2.148 trillion in FY21.

Within net domestic assets, the government sector borrowing increased to Rs3.379 trillion against the borrowing of Rs1,717 trillion in FY21.

The Finance Ministry report further said that credit to private sector witnessed an expansion of Rs1.612 trillion as compared to an expansion of Rs766.2 billion in FY21.

On the liability side, currency in circulation contained to Rs662.5 billion in FY22 as compared to an increase of Rs767.9 billion in FY21.

Total deposits with banks witnessed an expansion of Rs2.593 trillion as compared to Rs2.594 trillion in FY21. This brought the currency-to-deposit ratio down to 38% in FY22 against 39.9% in FY21.

The report attributed this uptick in the deposit mobilization to a cumulative 675 bps increase in the policy rate in FY22 and the removal of withholding tax on the banking transactions with effect from July 1, 2021.

Credit : Independent News Pakistan-WealthPk