Pakistan - Public finance



The fiscal year extends from 1 July to 30 June. The federal government frames two separate budgets: revenue (current account) and capital. Deficits have appeared since 1971/72, a combined result of the loss of revenues from East Pakistan, stepped-up defense expenditures, lax spending controls, and a low and inelastic tax base. Current expenditures (debt service, defense, administration) now consume over 70% of the budget, while development needs (education, health, energy, and rural development) receive the remainder. Tax revenues have not kept pace with expenditure growth due to widespread evasion, corruption among tax officials, overreliance on foreign trade taxes, and a tax exemption for agricultural income, which comprises 24% of GDP.

The budget deficit was hovering at about 6.2% of GDP in 1995 and 1996 and was projected to reach almost 7% in 1997. Interest payments on the accumulated debt threatened to bankrupt the government by mid-1997. As a condition for a $1.6 billion loan from the IMF and World Bank, the government agreed to reduce the deficit to 4% of GDP. To do so, the government attempted to raise revenues by expanding the tax base beyond the 1% of Pakistanis who then paid income tax. Other proposals included a reduction in government payrolls, improved tax administration, and an end to the tax exemption for agricultural income. The IMF approved an Enhanced Structural Adjustment Facility in January 1999, when Pakistan was almost halfway through the three-year Structural Adjustment Program worth $1.6 billion. In April 2000, the IMF discovered that the former Prime Minister Nawaz Sharif had purposely minimized reports of the government's budget deficit, by about 1%, in order to keep the extra $2 billion in funds. Despite the dismal financial situation, the government has yet to reduce defense spending which accounts for almost 25% of the budget.

The US Central Intelligence Agency (CIA) estimates that in 2000/2001 Pakistan's central government took in revenues of approximately $8.9 billion and had expenditures of $11.6 billion. Overall, the government registered a deficit of approximately $2.7 billion. External debt totaled $31.5 billion.

The following table shows an itemized breakdown of government revenues. The percentages were calculated from data reported by the International Monetary Fund. The dollar amounts (millions) are based on the CIA estimates provided above.

Pakistan

REVENUE AND GRANTS 102.5% 9,122
Tax revenue 67.4% 5,999
Non-tax revenue 22.8% 2,032
Grants 12.3% 1,091

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