Fiscal Deficit in 1HFY21 clocked-in at PKR 1,138bn (2.5% of GDP) – Deficit up by 14% YoY in 1HFY21

• Pakistan’s fiscal balance in the current fiscal year to date has weakened over prior year, with the deficit arriving at PKR 1.14trn in 1HFY21 (2.5% of GDP) compared to PKR 995bn in 1HFY20 (2.3% of GDP), up by 14.4% YoY. With that said, the primary surplus during the period at PKR 337bn (0.7% of GDP in 1HFY21) fares better compared to a primary surplus of PKR 286bn witnessed last year (0.7% of GDP), which is slightly above the IMF’s initial target at 0.6% of GDP.

• Primarily, total revenue growth at 3.7% in 1HFY21 to PKR 3.4trn (1HFY20: PKR 3.2trn) aided the fiscal operations, translating into 7.4% of GDP vs. 7.3% last year. The total tax revenue collection remained almost flat at PKR 2.5trn (-0.4% YoY). Indirect taxes (+5.4% YoY to PKR 1.38trn), sales tax (+6.9% YoY to PKR 918bn), and direct taxes (+5.9% YoY to PKR 831bn; higher number of tax payers), contributed to the overall collection.

• Moreover, the government collected PKR 895bn in non-tax revenues, displaying a jump of 17% YoY. This was particularly on the back of Petroleum Levy which is now classified under non-tax revenue (+1.1% YoY | PKR 275bn). On the flipside, the surplus profit of State Bank of Pakistan and Pakistan Telecommunication Authority declined during 1HFY21 to PKR 372bn (-12% YoY) and PKR 18bn (-84% YoY), respectively.

• In addition, total expenditures went up by 6.2% YoY to PKR 4.5trn (9.9% of GDP vs. 9.6% of GDP in 1HFY20). Further breakup revealed that current expenditure underwent an uptick of 8.3% YoY of which markup payments rose by 15% YoY. On the contrary, the defence expenses went down by 8% YoY to PKR 487bn. Moreover, development expenditure and net lending undertaken by the government declined by 3.3% YoY.

• Total PSDP expenditure in 1HFY21 arrived at PKR 403bn (-12% YoY) with provincial expenditure at PKR 227bn, outdoing federal disbursement of PKR 175bn.

Decline of 7.8% YoY in deficit during 2QFY21

• We also highlight that cumulatively all four provincial governments recorded an overall balance of PKR 254bn during 1HFY21, compared to PKR 324bn recorded in the corresponding period last year, marking a 22% decline. Punjab remained the only province to record a jump of 23% YoY in 2QFY21.

• Pertinently, budget deficit during 2QFY21 settled at PKR 654bn (1.4% of GDP), depicting a decline of 7.8% YoY vis-à-vis PKR 709bn in SPLY.

• Total revenues of the government in 2QFY21 arrived at PKR 1.87trn (4.2% of GDP), up by 7.4% YoY from PKR 1.74trn. Observations were similar to 1HFY21 with non-tax revenues in the outgoing quarter depicting a surge of 28% YoY to PKR 539bn alongside a meagre 0.8% jump in tax revenues to PKR 1.3trn.

• FBR benefitted from a 9% YoY rise in direct taxes to PKR 467bn in 2QFY21 whereas collection from sales tax and indirect taxes went up by 6% and 5% YoY to PKR 482bn and PKR 732bn, respectively.

• Total expenditure in 2Q clocked in at PKR 2,526bn (5.6% of GDP), up 3% YoY over the same period of last year (PKR 2,452bn; 5.6% of GDP) with a 9% decline in defense expenditure to PKR 262bn and 4% upturn in current expenditure to PKR 2.2trn.

• The deficit in the first half of FY21 was financed by borrowing 60% of the total deficit domestically, which amounts to PKR 683bn (+42% YoY | 1HFY20: PKR 481bn); while remaining 40% PKR 454bn was raised through external sources (-12% YoY| 1HFY20: PKR 513bn).

Fiscal Deficit to Climb up to 7.8% of GDP during FY21

• Going forward, in 3QFY21 we are expecting a budget deficit of ~PKR 1.09trn (2.4% of GDP) taking the FY21 budget deficit to nearly 7.8% of GDP (PKR 3.65trn) with total revenue expectations at PKR 7.3trn while total expenditure forecast at PKR 8.8trn.

Courtesy by AHL Research

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