Pakistan’s fiscal deficit narrows to 7.1% in FY21

Web DeskWeb Editor

27th Aug, 2021. 03:05 pm
Rupee drops

KARACHI: Pakistan’s fiscal deficit has been recorded at 7.1 per cent of the GDP in the fiscal year 2020/21, which has come down from the previous fiscal year’s deficit of 8.1 per cent.

The budget deficit of the country stood at Rs3.40 trillion in the fiscal year 2020/21, compared with Rs3.37 trillion in the preceding fiscal year, according to the statistics released by the Ministry of Finance.

Analysts at Arif Habib Limited said the fiscal deficit came largely with the expectations and also the government’s estimate of 7 per cent of the GDP.

This is the first time that Pakistan has reported the fiscal deficit worth 7 per cent of GDP for three consecutive years after 1987/88 (i.e., after 33 years), which, in turn, has resulted in higher borrowings by the government, and subsequently higher money supply and higher inflation.

The analysts said the government was unable to contain the primary balance, which recorded a deficit of Rs654 billion during the fiscal year under review, compared with the IMF’s June-end performance criteria of a surplus of Rs246 billion. Last year, the primary balance recorded a deficit of Rs757 billion.

The government financed Rs1.338 trillion, around 39 per cent of the overall deficit through the net external financing and Rs2.065 trillion, around 61 per cent through net domestic financing.

All the four provinces recorded the budgetary surplus during 2020/21, clocking-in at a cumulative surplus of Rs314 billion.

In the fourth quarter of 2020/21, the overall budget deficit came in at 3.5 per cent of GDP, which was 4.3 per cent of GDP in the preceding fiscal year with a primary deficit of 2.4 per cent of GDP as against the preceding fiscal year’s 2.2 per cent of the GDP.

The analysts expect Pakistan’s fiscal deficit to clock-in at around 7 per cent to 7.5 per cent of GDP in the fiscal year 2021/22.

The tax revenues increased 11 per cent YoY during 2020/21. However, the petroleum levy is now classified as a non-tax revenue, and adjusting for this tax revenues are up 18 per cent YoY. Direct taxes and sales tax (federal) have increased 14 per cent YoY and 25 per cent YoY, respectively.

The non-tax revenues increased 7 per cent YoY; however, adjusting for petroleum levy again, the same is down by 21 per cent YoY, as surplus profit from the State Bank of Pakistan (SBP) dropped 30 per cent YoY.

The current expenditures have increased 6 per cent YoY during FY21, where the markup payments were up 5 per cent YoY even though interest rates have sharply come down.

The analysts said this is largely owing to the realisation of fixed coupon payments on the Pakistan Investment Bonds (PIBs) sold during the first quarter of FY20 and higher borrowings.

The government expenditures (current minus markup and defence) increased 7 per cent YoY during FY21, while the defence expenditures increased 9 per cent YoY. The development expenditures and net lending also increased 9 per cent YoY to Rs1.316 trillion.

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