ISLAMABAD: Effective implementation of fiscal consolidation reforms is imperative to create a fiscal space for progressive social spending and investments.
Senior research economist at the Pakistan Institute of Development Economics (PIDE) Dr. Mahmood Khalid says this while talking to WealthPK.
Dr Khalid said the fiscal consolidation efforts (revenue and expenditure rationalization) have resulted in a decline in non-interest expenditure and an enormous build-up of surplus in the primary balance in the current fiscal year.
According to the World Bank’s recent report, fiscal consolidation measures have resulted in a 1.7 percent decline in non-interest expenditure during the first half (H1 FY23) of the Fiscal Year 2023. Meanwhile, revenue increased by 18.8 percent across tax and non-tax revenue.
However, the higher interest rate, along with the enormous rupee devaluation, has significantly increased debt servicing costs, Dr. Mahmood added.
As per the statistics released by the Ministry of Finance, the higher servicing cost has consumed more than 50 percent of total revenue and in turn enlarged the deficit by the highest H1 growth rate in four years. The country’s fiscal deficit rose by 22.7 percent in H1 FY23, slightly higher than the growth of 20.6 percent in H1 FY22.
WealthPK has found that maintaining stability and recovery will require implementing bold strategies, including increased revenue mobilization, closing tax exemptions, removing unsustainable subsidies, reducing discretionary expenditures, reviewing PSDP development expenditure to cancel ad-hoc projects, and undertaking pension reforms to reduce the cost.
Furthermore, effective implementation of the Public Financial Management (PFM) Act would surely improve the quality of development spending. –INP
