Fiscal deficit declines to Rs2.197tr in 11 months of FY2021

ISLAMABAD – Pakistan’s fiscal deficit has contained at 4.6 per cent of GDP during eleven months (July-May) of the previous year (FY2021) while the primary balance remained in surplus throughout this time.

The country’s budget deficit was recorded at Rs2.197 trillion during July-May period of FY2021 as compared to Rs2.418 trillion in the corresponding period of the FY2020. Despite significant challenges, the current fiscal performance is largely in line with government’s strategy to ensure fiscal discipline, increasing revenues and controlling expenditures. “The government is highly committed to strike a balance between fiscal deficit and economic stimulus package due to COVID-19 without hurting the economic growth,” the ministry of finance noted in its ‘Monthly Economic Update Outlook July 2021’.

Fiscal deficit has contained at 4.6 per cent of GDP during Jul-May FY2021 while the primary balance remained in surplus throughout this time. Primary balance remained at surplus of Rs139 billion during the period under review as compared to deficit of Rs339 billion in the same period of the FY2020. The ministry of finance stated that government’s continuous efforts for resource mobilization are bearing fruits. FBR tax collection exceeded the target by Rs41 billion during FY2021 owing to effective enforcement measures. Keeping in view the post COVID economic recovery it is expected that the revenue performance shall improve further in the new fiscal year. The continuation of current fiscal strategy would ensure long term fiscal discipline and sustainability

During the period under review, net federal revenues grew by 13.3 per cent to Rs3003 billion against Rs2650 billion last year. In contrast, total expenditures grew by 5.1 per cent to stand at Rs5625 billion during July-May, FY2021 as compared to Rs5353 billion in the same period of FY2020. Consequently, the fiscal deficit reduced to 4.6 per cent of GDP (Rs2197 billion) during Jul-May, FY2021, down from 5.8 per cent of GDP (Rs2418 billion) last year. 

The surge in economic growth is expected to continue in FY2022 on account of reopening of economic activities and acceleration in vaccination process. The risk of pandemic still exists, however the government may not follow complete lockdown given the public behaves responsibly by following the COVID related SoPs. In recent months, the YoY inflation rate is on a declining trend. It is expected that this declining trend will continue in the absence of any major shock. Inflationary impulses in July can be considered as 2nd round effect of previous increase in international commodity prices, from recent increase in gasoline prices, currency depreciation and monetary expansion. 

The inputs availability is sufficient and it is expected that the agriculture sector will continue to perform well on account of continuing support of the government to the sector. Economic growth momentum has strengthened considerably since March and has remained robust during the last quarter of FY2021. BOP data revealed strong expansion of imports of goods and services, especially in June. Imports in June, 2021 increased by 1.6 billion USD as compared to May due to seasonal factors. It is expected that in coming months, imports of goods and services may settle below the level observed in June.

The observed growth momentum is driven by production side of the economy. This is also reflected in the exports of goods and services, which according to BOP data increased by about $ 0.5 billion in June as compared to May. It is expected that exports will remain at the same level and consequently trade balance in goods and services will improve in coming months. These expectations depend on the absence of unexpected shocks for example those that may be generated by the recently observed surge in domestic and foreign COVID-19 infections. The remittances flows are expected to continue their momentum in coming months. Taking these into account, as well as the other secondary income flows and the primary income flows, the current account is expected to remain in deficit slightly. These developments require further monitoring for smooth continuation of economic activities. The objective of recent accommodative monetary and fiscal policies is to put Pakistan’s economy on higher growth trajectory. The economic recovery in Pakistan’s main exporting partners is making the external environment favorable. However, recent deadly floods in Germany, China, India, and North America may raise direct and indirect economic losses along the global supply and trade chains. Further, in the transition towards a higher potential growth level, pressure can be built on external accounts. Thus, it is important to closely monitor it in order to ensure that the new growth strategy is sustainable without any macroeconomic imbalances as observed in the past.

Article source: https://nation.com.pk/29-Jul-2021/fiscal-deficit-declines-to-rs2-197tr-in-11-months-of-fy2021