August 27, 2021 (MLN): Pakistan’s overall fiscal deficit in FY21 stood at 7.1% of GDP (Rs3.4trillion) against 8.1% of GDP (Rs3.37tn) in FY20, showing a decline of Rs27bn or 1% YoY.
This was largely in line with the government’s estimate of 7.1% of GDP.
According to the report by Topline Securities, this is the first time that Pakistan has reported a fiscal deficit north of 7% of GDP for three consecutive years after FY88 (ie. after 33 years), which in turn has resulted in higher borrowing by the government and subsequently higher money supply and higher inflation.
Data issued by the Ministry of Finance on fiscal operations for FY21 showed that the government was unable to maintain a surplus in primary balance as it recorded a deficit of Rs654bn or 1.4% of GDP in FY21 compared to a deficit of Rs757bn (1.8% of GDP) in the previous fiscal year. To note, IMF projected a primary deficit at 1% of GDP for FY21.
As per the data, the government plugged this deficit through domestic borrowing of Rs2.065tn (61%), while external borrowing to finance the deficit amounted to Rs1.34tn (39%). Compared to the same period last year, the government domestic and external borrowings to aid the budget deficit were stood at Rs2.48tn and Rs895.5bn respectively.
In 4QFY21, the overall budget deficit stood at 3.5% of GDP compared to 4.3% of GDP in 4QFY20, with a primary deficit at 2.4% of GDP as against 2.2% of GDP in the same quarter last year.
Government data showed all four provinces recorded a budget surplus, clocking in a cumulative surplus of Rs314bn during FY21 compared to a cumulative surplus of Rs77bn in FY20, up by 4x YoY. Individually, Punjab, Sindh, KPK, Baluchistan provinces recorded a budgetary surplus of Rs187bn, Rs42.6bn, Rs68.79bn, and Rs15.14bn respectively. Compared to last year, Punjab and KPK province recorded a budget deficit of Rs8.34bn and Rs2.214bn respectively, while Sindh and Baluchistan reported a budget surplus of Rs63.39bn and Rs24.2bn respectively.
Revenues and Expenditures
As the fiscal deficit is the difference between the expenditures and revenues of the government. During FY21, total revenues and expenditures of the government as a percentage of GDP stood at 14.5% and 21.6% respectively, compared to 15% and 23.1% recorded in the same period last year. while in absolute terms, the total revenues amounted to Rs6.9tn and the expenditures to Rs10.3tn, showing a growth of 10% and 7% YoY respectively.
Tax Revenues stood at Rs5.27bn during FY21, up by 11% YoY. However, Petroleum Levy (PL) is now classified as Non-tax revenue and after adjusting for this Tax revenues surged by 18% YoY in FY21. Of the total tax revenues, about Rs4.76tn came from federal revenues and Rs508.39bn came from provincial. Moreover, within the tax revenues, Direct Taxes and Sales Tax (Federal) have increased by 14% YoY and 25% YoY, respectively. The tax to GDP ratio in FY21 was 11.1% vs 11.4% in FY20.
Non-Tax Revenues increased by 7% YoY to Rs1.63tn attributed to a significant 45% YoY increase in Petroleum Levy to Rs424.65bn against a target of Rs450bn set by the government. However, adjusting for the PL again, Non-tax revenues declined by 21% YoY as the Surplus profit from SBP dropped by 30% YoY to Rs650.5bn from Rs935,5bn in FY20. For FY22, the government has set a PL collection target of Rs600bn. Non-tax to GDP ratio was 3.4% in FY21 vs 3.7% in FY20.
On the expenditure front, Current Expenditures have increased by 6% YoY during FY21, where Mark-up Payments were up by 5% YoY even though interest rates have sharply come down. This is largely owing to the realization of coupon payments on PIBs sold during 1QFY20 and higher borrowing, a report by Topline Securities cited.
Government Expenditures (Current minus Markup and Defense) increased by 7% YoY during FY21, while Defense Expenditures were increased by 9% YoY. Development Expenditures & Net Lending also surged by 9% YoY Rs 1.3tn. With that, total expenditure to GDP was 21.6% in FY21 vs 23.1%in FY20.
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