Pakistan’s fiscal deficcit stands at 7.1% of GDP(RS3.4 trillion) in FY21 as compared to 8.1% (Rs3.37tn) in FY20. This demonstrates a decline of 1% YoY or RS27bn.
This was in accordance with the government’s estimate of 7.1% of GDP.
Topline Securities reported that for the first time Pakistan has reported a Fiscal deficit higher than 7% for three consecutive years since 1988. It has lead to an elevated borrowing by the governement, facilitating higher inflation and a higher money supply.
The Ministry of Finance issued data on fiscal operations for FY21, which showed that the government was unable to maintain a surplus in primary balance and recorded a deficit of Rs654bn or 1.4% of GDP in FY21 against a deficit of Rs757bn (1.8% of GDP) in the previous fiscal year. The IMF projected a primary deficit at 1% of GDP for FY21.
As per the data, the government plugged this deficit through the external borrowing of Rs1.34tn(39%) and domestic borrowing of Rs2.065tn (61%), to aid the deficit amounted to Rs1.34tn (39%). Compared to last year, the government’s external and domestic borrowings stood at Rs895.5bn and Rs2.48tn respectively.
In 4th Quarter of FY21, the overall budget deficit stood at 3.5% of GDP against 4.3% of GDP in 4QFY20, with a primary deficit at 2.4% of GDP as compared to 2.2% of GDP last year.
Government data exhibited that all provinces had seen a budget surplus, accountiing to an accumulative surplus of RS314bn, whereas last year the number stood at Rs77bn. Individually Punjab, KPK, Sindh and Balochistan recorded a surplus of Rs187bn, Rs68.79bn, Rs42.6bn and Rs15.14bn respectively. Compared to FY20, Punjab and KPK province reported a budget deficit of Rs8.34bn and Rs2.214bn respectively, while Sindh and Balochistan recorded a budget surplus of Rs63.39bn and Rs24.2bn respectively.
Detailed analysis of revenue and expenditure
The fiscal deficit is the difference between the ecpenditure and revenue of the government. In 2021, the revenue and the expenditure of the government stood at 14.5% and 21.6% respectively. While last year the numbers were 15% and 23.1% respectively. In absolute tersm the percentages translate into a revenue of RS6.9tn and expenditure of Rs10.3tn, demonstrating a growth of 10% and 7% respectively.
The Tax revenue increased by 11%, standing at RS5.27bn during FY21. Adjusting for the Petroleum Levy, which is now classified as a non-tax revenue, Tax revenue has expanded by 18%. The Direct Taxes and Sales taxes have surged by 14% YoY and 25% YoY respectively. Of the total Tax revenue, federal government contributed Rs4.76tn and Rs 508.39 came from the provinces.
The Non-tax revenues saw an increase of 11% YoY or Rs1.63tn. This can be accredited to Petroleum Levy, which increased by 45%. The taxes accounted to Rs 424.65bn agaisnt the target of Rs450bn set by the government. If the Pl is adjusted, a decline of 21% can be observed. Largely because the profit surplus by the SBP dropped by 30% YoY, from Rs935.5bn to Rs650bn. For the next fiscal year the government has a collection target of Rs600bn. Non-tax to GDP ratio was 3.4% in FY21 vs 3.7% in FY20.
On the other hand, the Current expenditures in FY2021 have increased by 6%. Where the mark-Up payments increased by 5% teh interest rates came sharply down. According to the Topline Securities, this might be due to a higher borrwing and owed to the realization of coupon payments on PIBs sold during first quarter of FY20.
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.