Fiscal deficit contracts at 3.8pc in first nine months

Fiscal deficit contracts at 3.8pc in first nine months

ISLAMABAD: The fiscal deficit has contracted at 3.8 percent during first nine months of current fiscal year. The budget deficit was 5 percent in the same moths of the last fiscal year.

Analysts at Topline Securities said that importantly, the primary balance during the period clocked in at 0.4 percent of GDP or Rs194 billion (last year was -1.2 percent of GDP or -Rs463 billion), close to the initial target of 0.6 percent set by the IMF.

IMF is likely to review these targets going forward because of the implications of COVID-19 outbreak, the analysts said.

In the 3QFY20, the fiscal deficit came in at 1.6 percent of GDP compared to 2QFY20’s fiscal deficit of 1.6 percent of GDP and 1QFY20’s fiscal deficit of 0.7 percent of GDP.

All the four provinces recorded a budgetary surplus during the first nine months of current fiscal year, while only Punjab recorded a budgetary deficit in 3QFY20.

During the 9MFY20, Total Revenues increased by 31 percent YoY, where the improvement was led by 14 percent YoY higher Tax Revenues (Mar-2020 revenues partially affected by COVID-19) and 160 percent YoY higher Non-Tax Revenues.

Looking into further breakup of revenues, government collected 15 percent YoY higher Direct taxes, 18 percent YoY higher Sales Tax and 40 percent YoY higher Petroleum Levy during 9MFY20. In 3QFY20, the same were down by 16 percent QoQ, 16 percent QoQ and 17 percent QoQ, respectively.

The government hugely benefitted from 360 percent YoY higher profits from State Bank of Pakistan (SBP) in 9MFY20 (down 13 percent QoQ in 3QFY20), which is around 1.4 percent of GDP.

On the expenditures front, Total Expenditure increased by 16 percent YoY. Current Expenditures increased by 17 percent YoY, where Mark-up Payments were up 29 percent YoY and Defense Expenditures were up 4 percent YoY. Excluding these items, government’s own expenses increased by 14 percent YoY during 9MFY20.

The decline in interest rates helped the government reduce the interest bill by 16 percent QoQ during 3QFY20.

The Development Expenditure remained steady, where growth of 14 percent YoY was witnessed in 9MFY20. In 3QFY20, the same declined by 6 percent QoQ.

In the wake of COVID-19, government’s expenses on Social Protection during the 3QFY20 clocked in at Rs13.9bn (vs. Rs701mn in 2QFY20 and Rs547mn in 1QFY20).

Pakistan’s fiscal deficit to clock in at 9.0 percent of GDP in FY20 due to implications of COVID-19 on both revenues and expenditures, the analysts estimated.

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