Islamabad, Pakistan's fiscal performance has continued to deteriorate in the third quarter of fiscal year 2024, with the budget deficit reaching 1.4% of GDP for the quarter and cumulatively 3.7% for the first nine months of the fiscal year. Despite this, there is a potential turnaround in the primary balance, which could see the first surplus after 20 years, currently projected at 0.9% of GDP for the fiscal year.

According to JS Global, the primary balance, which excludes interest payments on government debt, has slipped into a deficit of 0.2% of GDP in the third quarter. This decline is attributed to a 7% quarterly decrease in tax collection and the absence of profits from the State Bank of Pakistan (SBP), which had significantly contributed to revenue in the previous quarter. Moreover, despite a seasonal decline in interest expenses and a 74% drop in subsidy spending, which lessened the fiscal burden, the overall fiscal health has not shown improvement.

The report highlights that tax collection in the first ten months of FY24 fell short of the government's targets, consistently missing monthly goals by margins ranging from 1% to 8%. However, the substantial revenues from SBP profits, which have increased by 62% this year, offer a glimmer of hope. These profits have been bolstered by a 50% increase in repo borrowings by the government from the bank, driven by the need to finance fiscal deficits and attract risk-free government securities amidst anticipated monetary easing measures.

As FY24 progresses, the fiscal deficit is projected to potentially widen to 7.3%, but the primary balance could still show a surplus of 0.9%, marking the first in two decades. This projection is contingent on continued high profits from the SBB, particularly in the fourth quarter, which could significantly influence the fiscal outcomes for the year.