More bad news on the economic front. According to the latest data, the country booked the highest-ever budget deficit of Rs2.26 trillion in the last fiscal year due to expansionary fiscal policies in an election year and poor performance of tax machinery, throwing the country into a deeper debt trap. In its annual consolidated federal and provincial budgetary operations report, the Ministry of Finance has reported that the budget deficit was equal to 6.6 per cent of gross domestic product (GDP). In absolute terms, it was the highest-ever deficit, which broke previous year's record of Rs1.864 trillion. The Rs2.26-trillion deficit is Rs780 billion, or 2.5 per cent of GDP, higher than the target set by previous parliament in June 2017. The budget deficit is equivalent to 6.6 per cent of GDP against the approved limit of 4.1 per cent.
The main reasons behind the record deficit were reckless spending by the federation and provinces with eyes on the 2018 general elections and a steep decline in tax and non-tax revenues. The 6.6 per cent deficit was the highest in five years of the former PML-N government. This is exclusive of roughly Rs2 trillion in liabilities that the last government parked outside budget books. These liabilities relate to the outstanding debt of power, gas and commodity sectors. Total circular debt including the one parked in a public holding company has increased to Rs1.1 trillion. In order to bridge the yawning gap, Pakistan received a net Rs785 billion in foreign loans and Rs1.5 trillion in domestic loans in the last fiscal year. Gross foreign loans stood at Rs1.235 trillion. Against the budgeted repayment estimate of Rs326 billion, actual external debt repayments stood at Rs450.2 billion.
Under the three-year International Monetary Fund (IMF) bailout programme, Pakistan had committed to gradually reducing the budget deficit to less than 4 per cent of GDP. Despite fiscal consolidation and imposing new taxes, the deficit remained at an unmanageable level. Resultantly, the country's gross public debt swelled to Rs28 trillion or 72.5 per cent of GDP - a very dangerous level for a developing country like Pakistan. Due to the growing debt burden, the country spent Rs1.5 trillion or one-third of its total budget on debt servicing in the last fiscal year. The implementation of the expansionary fiscal policy has exposed the country to the risk of twin deficits in its current account and budget. The current account deficit also widened to a record $18 billion in the last fiscal year.
Except for the Khyber-Pakhtunkhwa (K-P) government, the other three provincial governments opened public purse ahead of general elections. Instead of generating Rs347 billion in cash surplus, the four provincial governments cumulatively booked a budget deficit of Rs22.4 billion. Against revenues of Rs1.4 trillion, the Punjab government's total expenditure surged to Rs1.42 trillion, a difference of Rs6.6 billion. The last Sindh government booked a budget deficit of Rs42.3 billion and Balochistan government also overspent Rs7.8 billion. The K-P government showed a cash surplus of Rs34.4 billion.The federal government's total net income after transferring provincial shares stood at Rs2.5 trillion. But it incurred expenditure to the tune of Rs4.7 trillion, booking a deficit of Rs2.2 trillion.
The federal government's tax revenues fell by about Rs265 billion against the target of Rs4.3 trillion. The main reason was the FBR's failure to achieve its Rs4.013-trillion annual tax collection target. Its collection stood at Rs3.842 trillion, including the Rs121 billion collected under the tax amnesty scheme. The collection under the head of other taxes also fell short of the target by Rs94 billion to Rs223.6 billion mainly due to less recovery of Gas Infrastructure Development Cess.
Non-tax revenues stood at Rs630 billion only, short of the target by Rs350 billion. The main reasons behind the low non-tax receipts were the United States' decision to withhold Coalition Support Fund payments, lower-than-budgeted profit of the State Bank of Pakistan (SBP) and shortfall in dividends and mark-up receipts.