In the first half of the fiscal year 2024-25, Pakistan has encountered a budget deficit of Rs1.54 trillion, approximately 1.2% of the nation’s GDP. This deficit emerged after an initial surplus in the first quarter, primarily due to the lump-sum booking of profits from the State Bank of Pakistan (SBP). However, by December 2024, the country’s fiscal position shifted as total revenues and expenditures did not align, resulting in a shortfall. This financial setback comes just ahead of the International Monetary Fund’s (IMF) scheduled review talks for the $7 billion Extended Fund Facility (EFF).
Despite starting the fiscal year with a surplus in the first quarter (July-September), Pakistan’s budget balance turned negative as discrepancies in government financial data contributed to the budget deficit. The federal government recorded a statistical discrepancy of Rs0.23 trillion, while provincial governments in Punjab, Sindh, and Khyber Pakhtunkhwa showed discrepancies ranging from Rs0.198 trillion to Rs0.34 trillion. Balochistan faced the largest discrepancy, with a negative Rs0.53 trillion.
Debt servicing has remained the largest expenditure for the country, amounting to Rs5.14 trillion for the first half of the fiscal year. The government has revised its debt servicing projection for FY25, lowering the estimate from Rs9.7 trillion to Rs8.7 trillion, reflecting the impact of six consecutive policy rate cuts. Defence spending, another significant outlay, reached Rs0.89 trillion during the same period.
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While debt servicing and defence spending have been the dominant expenditure areas, development spending has been relatively low. For example, federal development spending under the Public Sector Development Programme (PSDP) stood at Rs0.132 trillion in the first six months, a decrease from Rs0.22 trillion in the first quarter. Provincial governments, on the other hand, allocated Rs0.639 trillion towards development projects in the same period.
Pakistan’s total revenue for the first half of FY25 reached Rs9.76 trillion. Of this, Rs6 trillion came from tax revenues, and Rs3.69 trillion was generated from non-tax sources. However, total expenditures for the first six months amounted to Rs11.3 trillion, leading to the Rs1.54 trillion deficit.
The government has financed the budget deficit through a mix of external and domestic borrowing. However, external borrowing has been negative, amounting to Rs0.78 trillion, while domestic borrowing reached Rs1.61 trillion.
As Pakistan approaches its IMF review talks, there is growing pressure on the government to manage its fiscal balance more effectively. With rising debt servicing costs and low development spending, it faces a challenging path ahead to stabilize the economy and meet its financial commitments.
In conclusion, Pakistan’s fiscal challenges in FY25 are reflective of its increasing reliance on debt and limited capacity to invest in development projects. The government will need to carefully balance its expenditure and revenue generation strategies to manage the budget deficit and ensure long-term economic stability.
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