Fiscal Deficit Remains Contained at 3.6% of GDP in Nine Months

Pakistan’s Fiscal Deficit has clocked in at 3.6 percent of GDP (or Rs. 1,652 billion) in 9MFY21 compared to 3.8 percent of GDP (or Rs. 1,686 billion) in 9MFY20, a research report by the brokerage house Topline Securities revealed on Thursday. It translates into a decrease of 2 percent YoY during 9MFY21. While the overall deficit remained in check, the government has also managed to record a surplus in Primary Balance at 1.0 percent of GDP (or Rs. 452 billion), higher than agreed with the International Monetary Fund (IMF). The government-financed Rs. 562 billion (34 percent) of the overall deficit through net External Financing and Rs. 1,090 billion (66 percent) through net Internal Financing. All four provinces recorded budgetary surplus during 9MFY21, clocking in a cumulative surplus of Rs. 413 billion. In 3QFY21, the overall budget deficit sharply contracted by 26 percent YoY on the back of a 13 percent YoY rise in Total Revenues, while Total Expenditures remained largely unchanged. The financing of the deficit in the 3QFY21 was more skewed towards net Internal Financing (i.e., 79 percent in 3QFY21 vs. 60 percent in 1HFY21). We expect Pakistan’s Fiscal Deficit to clock in at around 7 to 7.5 percent of GDP in FY21 compared to 8.1 percent of GDP in FY20. Tax Revenues increased by 5 percent YoY during 9MFY21. However, Petroleum Levy is now classified as a Non-Tax Revenue, and adjusting for this, Tax Revenues are up by 11 percent YoY. Direct Taxes and Sales Tax (Federal) has increased by 9 percent YoY and 14 percent YoY, respectively. Non-Tax Revenues have increased by 12 percent YoY, however adjusting for Petroleum Levy, the same is down by 12 percent YoY as Surplus profit from SBP has dropped by 22 percent YoY. Current Expenditures have increased by 8 percent YoY during 9MFY21, where mark-up payments were up 12 percent YoY even though interest rates have sharply come down. We believe this is largely owing to the realization of coupon payments on PIBs sold during 1QFY20 and higher borrowing. Government Expenditures (Current minus Markup and Defense) increased by 9 percent YoY during 9MFY21. However, Defense Expenditures have come down by 2 percent YoY. Development Expenditures & Net Lending also remained contained at Rs. 723 billion, down 7 percent YoY.