Fiscal gap: real elephant in room

As per the announcement for the federal budget 2024-25, Pakistan will have to finance a budget deficit of Rs8,500 billion. This is such an important and staggering figure, yet no one recognises its real impact. We have been told that it is 8% of the GDP, but no one tells us that it is actually 45% of the total budget for 2024-25. To add some spice to it, a total of Rs7,800 billion will be financed through domestic financing, for which the lending rate is around 20%. Thus, the real figure would be even higher. For reference, the net federal receipts for 2024-25 would be Rs10,377 billion. Despite all the additional revenue mobilisation measures, the fiscal deficit would be 82% of the net federal revenue. It is quite interesting to note that despite the very strict and squeezing new tax measures, we are talking about additional revenue of a couple of Rs100 billion. Imagine the situation if we have to make up for even one fourth of this fiscal deficit. Pakistan has been grappling with serious debt challenges for a long time, and one of the central issues is its budget or fiscal deficit. Addressing this budget deficit requires prudent fiscal management, revenue diversification, and targeted spending. Policymakers must strike a balance between debt servicing and essential expenditures to ensure long-term economic stability.