Pakistan’s fiscal deficit escalates 33% YoY during 4MFY21: Finance Ministry

December 25, 2020 (MLN): Pakistan’s fiscal deficit during July-October, FY2021 stood at 1.7% of GDP (Rs 753 billion) against 1.4% of GDP (Rs 564 billion) in the comparable period of last year.

While primary balance has posted a surplus of Rs 178 billion (0.4% of GDP) during July-October, FY2021 against the surplus of Rs 130 billion (0.3%of GDP) in the same period of FY2020. In terms of growth, the primary surplus has recorded a historical increase of 37% during the period mentioned above.

The Economic Adviser’s Wing of the Ministry of Finance in its Monthly Economic Update & Outlook (MEUO) released on Thursday said that despite the challenges, fiscal performance is encouraging, especially on the revenues side as during July- October, FY21 net federal revenues grew by 11.2% to reach at Rs 1026 billion against Rs 923 billion in the same period of FY20.

Furthermore, it is also highlighted that despite a fast-tracking of refunds, FBR tax collection has increased as it surpassed the target of Rs 1669 billion by Rs 19 billion during the first five months of FY21. The net collection grew by 4% to Rs 1688 billion during July-November, FY21 against Rs 1623 billion in the comparable period of last year.

“With the current pace of tax collection, FBR is likely to achieve its tax collection target for the first half of the current fiscal year,” the report further said.

In its monthly Economic Outlook report, the Ministry of Finance also said that Pakistan’s economy is currently recovering from two consecutive crises, the first is in the form of macroeconomic imbalance that compelled necessary macroeconomic adjustments to correct the accumulation of unsustainable external BOP deficits and the second one is COVID-19 pandemic.

The recovery from both of these shocks is underway and promises strong growth in the current Fiscal Year, however, the recently observed resurgence of new waves of infections worldwide and also in Pakistan could affect continued economic recovery as halting activities in services could slowdown economic performance, the report highlighted.

It further noted that the effects on the economic outlook will depend on the intensity of the pandemic and duration of restrictions. “But specific well-designed government policies both domestically as well as in Pakistan’s trading partners may soften the economic burden of these necessary restrictions,” the report added.

It is also expected that the agriculture sector during FY21 will outdo the growth target of 2.8% on the back of improved production of sugarcane and rice compared to FY20 due to timely measures adopted by the government.

“On the basis of input availability and better weather forecast, the prospects for growth in agriculture are very encouraging,” the report mentioned.

This is supported by recent Suparco’s estimates about better performance of crops in Kharif season. For rabi season 2020-21, wheat crop sowing is in progress and is expected to be in time as compared to the previous year mainly due to timely termination of cotton and rice crops.

On the external front, the current account posted a surplus of $1.6 billion (1.4% of GDP) during July-November FY21 against a deficit of $1.7 billion last year (-1.6% of GDP). Contra­ctions in import payments for both goods and services were the primary factors.

This coupled with healthy growth in workers’ remittances resulted in a surplus of current account as remittance inflows keeping its trend seen in previous months and are expected to remain at a high level and will continue to compensate for the trade balance deficit in the first half of the current FY, the report cited.

With regards to the industrial sector, which is most exposed to external conditions, has been posting positive YoY growth in every month since July 2020 as the industrial activity has now again fully recovered from the downfall following the preceding balance of payment crises, the report said.

The necessary adjustments to curb unsustainable external deficits had depressed LSM in 2019. However, in recent months LSM is now also on its way to recover from the COVID-19 crises that caused industrial output to fall significantly in March and April this year, the report said.

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