KARACHI – Pakistan’s fiscal performance for the fiscal year 2020/2021 has shown encouraging signs as the budget deficit has reduced to 7.1 percent of the GDP compared to 8.1 percent in the preceding fiscal year.
This positive development comes on the back of various factors, including increased revenue collection and cost control measures.
The primary deficit during the period was recorded at Rs 654 billion, equivalent to 1.4 percent of GDP in FY2021, showing improvement when compared to the primary deficit of Rs 757 billion in the previous year, which accounted for 1.8 percent of GDP.
Total revenue growth played a pivotal role, with an impressive increase of 10.1 percent in FY2021, reaching Rs 6.90 trillion, up from Rs 6.27 trillion in FY2020. This boost in revenue translated into 14.5 percent of GDP, a slight improvement from the 15 percent of GDP recorded in the previous year.
The total tax revenue collection surged by 11.1 percent year-on-year, reaching Rs 5.27 trillion. Indirect taxes witnessed significant growth, rising by 22.6 percent year-on-year to Rs 3.03 trillion, driven primarily by a substantial increase in sales tax, which reached Rs 1.99 trillion. Direct taxes also contributed to the collection, growing by 13.6 percent year-on-year to reach Rs 1.73 trillion, thanks to an increased number of taxpayers.
Additionally, the government collected Rs 1.63 trillion in non-tax revenues, marking a 7 percent year-on-year increase. This increase can be attributed to the imposition of the Petroleum Levy, which now falls under non-tax revenue and saw a substantial 45 percent year-on-year increase, amounting to Rs 425 billion.
On the flip side, the surplus profit of the State Bank of Pakistan and the Pakistan Telecommunication Authority declined during FY2021 to Rs 651 billion (a 30 percent year-on-year decrease) and Rs 39 billion (a 70 percent year-on-year decrease), respectively.
Total expenditures for the fiscal year increased by 6.8 percent year-on-year to Rs 10.3 trillion, accounting for 21.6 percent of GDP, compared to 23.1 percent in FY2020. This increase was driven by a 6.5 percent year-on-year rise in current expenditure, with markup payments rising by 5 percent year-on-year. Defense expenses also went up by 8.5 percent year-on-year to reach Rs 1.31 trillion, while development expenditure and net lending undertaken by the government increased by 9 percent year-on-year to Rs 1.31 trillion.
The total Public Sector Development Program (PSDP) expenditure in FY2021 reached Rs 1.21 trillion, reflecting an 11 percent year-on-year increase, with provincial expenditure exceeding federal disbursements at Rs 770 billion compared to Rs 441 billion.
In the fourth quarter of FY2021, the budget deficit settled at Rs 1.75 trillion, equivalent to 3.5 percent of GDP, representing a 3.6 percent year-on-year increase compared to Rs 1.69 trillion during the same period in FY2020. Total government revenues in the fourth quarter of FY2021 reached Rs 1.91 trillion, equivalent to 3.5 percent of GDP, marking a 21 percent year-on-year increase from Rs 1.58 trillion in the fourth quarter of FY2020. The Federal Board of Revenue (FBR) taxes increased by 44 percent year-on-year to Rs 1.37 trillion due to a 28.4 percent year-on-year rise in direct taxes to Rs 485 billion in the fourth quarter of FY2021, while collection from sales tax and indirect taxes increased by 62 percent and 54 percent year-on-year to Rs 574 billion and Rs 884 billion, respectively.
Total expenditure in the fourth quarter of FY2021 reached Rs 3.66 trillion, equivalent to 7 percent of GDP, marking a 12 percent year-on-year increase compared to the same period in the previous year, with a 30 percent rise in defense expenditure to Rs 532 billion while current expenditure declined by 13 percent year-on-year to Rs 646 billion.
The budget deficit for FY2021 was primarily financed by borrowing, with 60 percent of the total deficit being raised domestically, amounting to Rs 2.07 trillion, which was 17 percent less than the previous fiscal year. The remaining 40 percent, equivalent to Rs 1.33 trillion, was raised through external sources, marking a 49 percent year-on-year increase compared to the previous fiscal year.
