Pakistan’s fiscal deficit narrows to 8.1 percent in FY20

Pakistan’s fiscal deficit narrows to 8.1 percent in FY20

KARACHI: Pakistan’s budget deficit narrowed to 8.1 percent in FY20 (2019/2020) as compared with the deficit of 8.9 percent in the preceding fiscal year, according to statistics released by the ministry of finance on Wednesday.

Analysts Topline Securities said that as the deficit is lower than the 9.1 percent of GDP envisaged by the government owing to lower utilization of the Rs1.24 trillion COVID-19 relief package. Reportedly around Rs480 billion could not be spent during the year.

The primary deficit for the year clocked in at 1.8 percent of GDP or Rs757 billion (last year was 3.5 percent of GDP or Rs1,354 billion).

In 4QFY20, the fiscal deficit came in at 4.3 percent of GDP compared to 9MFY20 fiscal deficit of 3.8 percent of GDP due to implications of COVID-19 on both revenues and expenditures.

Sindh and Baluchistan recorded a budgetary surplus during FY20, with  Punjab and KPK recording budgetary deficits during the period.

Total Revenues increased by 28 percent YoY in FY20, where the improvement was led by 257 percent YoY higher Non-Tax Revenues which includes Rs936 billion surplus profit from SBP.

The Tax Revenues increased by only 6 percent YoY during the year, where they declined by 12 percent YoY in 4QFY20 owing to COVID-19 outbreak. The government collected 5 percent YoY higher Direct Taxes, 9 percent YoY higher Sales Tax and 42 percent YoY higher Petroleum Levy during FY20.

In 4QFY20, as expected due to lockdown Direct Taxes and Sales Tax were down by 16 percent YoY and 15 percent YoY, respectively while Petroleum Levy was up 47 percent YoY.

On the expenditures front, Total Expenditure increased by 16 percent YoY in FY20. Current Expenditure increased by 20 percent YoY, where Mark-up Payments were up 25 percent YoY and Defense Expenditures were up 6 percent YoY.

In 4QFY20, Current Expenditure is up by 55 percent QoQ and 27 percent YoY due to COVID-19 related expenses.

The Development Expenditure remained steady (-1 percent YoY) in FY20, with 4QFY20 expenses rising by 37 percent QoQ but down 21 percent YoY.

In spite of the decline in interest rates, government interest bill increased by 24 percent QoQ and 17 percent YoY during 4QFY20 owing to greater borrowing at higher rates and interest payment schedule.

The analysts estimated that Pakistan’s fiscal deficit to clock in at around 8.5 percent of GDP in 2020/2021 due to continuing implications of COVID-19.