THE first quarterly report issued by the State Bank of Pakistan contains a few alarm bells. Thus far the SBP has been mostly optimistic of the country’s economic performance. In previous reports it has lauded the fiscal measures of the government, papered over the growing declines in exports, and celebrated the “record high reserves”. But the latest quarterly report, for the first time, sounds a few alarm bells that suggest that the government’s narrative of continuous strengthening of the economy may be running out of steam. The fiscal deficit during the first quarter reached “the highest first quarter level since FY12”. This happened “despite an exceptional growth in provincial surpluses”. Even on the expenditure side, current spending was restrained and an increase in development spending “was led by the provinces, as federal development spending posted a YoY decline of 7.6pc in Q1-FY17”. Taken together, these numbers show that the revenue effort of the government is unable to keep pace with its ambitious plans for the year, and increasingly the burden is being shifted onto the provinces. The SBP goes so far as to say that “achieving the annual fiscal deficit target of 3.8pc of GDP would be challenging. It will require additional fiscal consolidation efforts on the part of the government”.
