ISLAMABAD   -  Following sharp depreciation in local currency, the country’s interest payment on foreign loans would massively increase in the ongoing fiscal year that would widen the budget deficit.

A dollar has traded on Rs139 in interbank on Friday that was around Rs115 in April 2018 when the previous government made the budget estimates for the current fiscal year. Rupee had depreciated by over 20 percent in last six months, which would definitely enhance the interest payment, said an official of the ministry of finance. The government had earmarked Rs1.62 trillion for interest payment for the current fiscal year. However, this amount was estimated when dollar was at around Rs115 in April this year. Now, the amount would up followed the over percent depreciation in local currency, he added.

Mark-up payments had also enhanced Rs507 billion (1.3 percent of the GDP) in the first quarter (July-September) of the current fiscal year as compared to 1.2 percent of GDP or Rs446 billion in the same period last year. During last fiscal year, the government had spent Rs1.6 trillion on paying domestic and foreign debt servicing. The government had allocated Rs1.3 trillion for interest payment. However, the amount had surged by Rs300 billion due to the sharp rupee depreciation.

Another official said that government would review the economic data once the dollar rate stabilizes.  He informed that effect of rupee depreciation had witnessed in the first quarter’s figures. “The depreciation will negatively impact the budget deficit,” he concluded.

Similarly, the tax collection shortfall is another threat in maintain the budget deficit within target. The Federal Board of Revenue (FBR) has already faced Rs100 billion shortfall in tax collection during five months (July to November) of the ongoing financial year. The FBR provisionally has collected Rs1380 billion during July to November period of FY2019 as against the target of Rs1480 billion for the said period.

Pakistan budget deficit had already recorded at Rs541.7 billion (1.4 percent of the GDP) during the first quarter (July to September) of the ongoing fiscal year (FY2019). The country’s expenditures had stood at Rs1.64 trillion as against the revenues of Rs1.1 trillion during July-September period of FY2019.

 The budget deficit may swell to 6.5 to 7 percent of the GDP if the current trend continues in next three quarters of FY2019. However, the incumbent PTI led government had made the fiscal adjustment of 2.5 percent of GDP in September 2018 to restrict the budget at 5.1 percent of the GDP during FY2019. The government had slashed the Public Sector Development Programme (PSDP) by Rs125 billion to Rs675 billion for the ongoing fiscal year. The reduction of was the part of the mini budget, which was announced by the incumbent government to control the budget deficit . In mini- budget, the government had also taken additional taxation measures worth of Rs178 billion. The government claimed budget deficit otherwise would have swelled to Rs2.9 trillion (7.2 percent of the GDP) as against the budget estimates of Rs1.89 trillion in current fiscal year.