Karachi, August 30, 2021 (PPI-OT): FY21 Primary Balance misses IMF target

As per recent publications by the government, Pakistan’s Fiscal Deficit for FY21 clocked in at 7.1% of GDP, in-line with the revised budget target. Though this was lower than 8.1% of GDP reported during FY20, the overall fiscal balance worsened by 1% YoY, clocking in at Rs3.4bn in absolute terms. The deficit’s financing was met through External (39%) and Domestic (61%, out of which Banking was 55%) sources.

While revenues met their target, reflecting a growth of 10% YoY, higher development expenditure (+9% YoY) resulted in expansion of the fiscal deficit.

Moreover, the Primary Deficit witnessed some respite, improving by 14% YoY to Rs654bn and declining to 1.4% of GDP, as compared to 1.8% during FY20. Nonetheless, the Primary Balance remained way lower than IMF target of Rs246bn Surplus for the year.

On the provincial front, a cumulative of Rs314bn Fiscal Surplus was contributed, where Punjab (60%) provided the largest contribution, followed by KP (22%).

Going forward, meeting the huge tax revenue target of Rs5.8trn for FY22E, is intended to be met broadly through higher sales tax (51% of incremental tax target).

Nonetheless, considering the recent pickup in imports, there is a good chance that this will have a positive impact on revenue collection in the coming months. On the other hand, the recent growth in imports via official channels bodes well for revenue collections going forward. Other revenue sources are expected at Rs2trn, out of which the Rs610bn targeted from Petroleum Levy remains unaddressed so far.

With FY22E Current Expenditures at Rs7.5trn and total Expenditures at Rs8.5trn, the government targets to limit the consolidated deficit in absolute terms to FY21 levels taking Fiscal Deficit down to 6.3% of GDP. We highlight the government has already instructed to concerned ministries to exclude nonessential projects approved by Central Development Working Party (CDWP) in order to restrict PSDP spending.