KARACHI: The State Bank of Pakistan (SBP) has released its annual report for 2020/2021, outlining projections for the fiscal deficit and economic indicators for the financial year 2022 (FY22).
The SBP envisions the fiscal deficit to be within a range of 6.3 to 7.3 percent of GDP for FY22, emphasizing the impact of ongoing fiscal adjustments.
The annual report, issued on Wednesday, highlights the key factors influencing the fiscal landscape. The SBP anticipates the fiscal deficit range to be driven by a continued check on non-priority current spending and an expansion in both tax and non-tax revenues. Notably, the Corporate Income Tax (CIT) reforms announced in March 2021 are expected to support FBR tax collection by eliminating various income tax exemptions and normalizing tax rates.
Efforts to enhance tax administration are also emphasized to increase formality and expand the tax base. On the non-tax revenue side, the report underscores the reliance on Gas Infrastructure Development Cess (GIDC) collections, with the resolution of issues in litigation expected to contribute. Additionally, a sustained turnaround in sales of petroleum products may boost collection from the petroleum development levy.
The external sector faces pressures from the import side, with payments exceeding $6 billion in three of the past four months (June, August, and September 2021). The surge in imports is attributed to increased economic activity, rising global commodity prices, and continued imports of various commodities.
The SBP projects the current account deficit to be in the range of 2.0 to 3.0 percent of GDP during FY22. To finance the expansion in import payments, an increase in workers’ remittances and export receipts is anticipated. Remittances are expected to remain strong amid the global economic recovery, while international demand and government incentives are likely to bolster export performance.
The services deficit is projected to expand, reflecting a resumption in international air travel. The outlook for financial flows is considered favorable, with $3.8 billion received from global SDR allocations and Eurobond, along with expected loan disbursements and inflows into Roshan Digital Accounts (RDAs).
The report indicates that the economic recovery witnessed in FY21 is expected to gain further momentum in FY22. High-frequency demand indicators, machinery and raw material imports, consumer financing expansion, and robust domestic sales support this projection. The SBP forecasts GDP growth in the range of 4-5 percent.
The sustained vaccine rollout has contributed to optimism about the normalization of economic activity. Government policies, including accommodative monetary measures and pro-growth initiatives, are cited as key drivers. The SBP highlights the cascading effect of refinance schemes on growth through a revival in private investment, along with the positive impact of budgetary measures and focus on the construction industry.
The agriculture sector is expected to benefit from support packages for Kharif and Rabi crops, which will positively influence the services sector. The Consumer Price Index (CPI) inflation is expected to remain within 7.0 to 9.0 percent, with better commodity management practices.
While the projections are subject to multiple upside risks, including increased global commodity prices and utility tariff revisions, the SBP emphasizes the government’s commitment to fiscal adjustments to reduce the deficit to 6.3 percent of GDP in FY22, from 7.1 percent in FY21. The report concludes with an optimistic outlook for economic resilience and growth in Pakistan for the fiscal year ahead.