Deficit down by 12 percent YoY in 9MFY20
Karachi, May 07, 2020: Pakistan’s fiscal balance in the current fiscal year to date has shown improvement over prior year, with the deficit arriving at PKR 1.7 trillion in 9MFY20 (3.8 percent of GDP) compared to PKR 1.9 trillion in 9MFY19 (5 percent of GDP), down by 12 percent YoY.
With that said, although the primary surplus during the period at PKR 194 billion (0.4 percent of GDP in 9MFY20) fares better compared to a primary deficit of PKR 463 billion witnessed last year (-1.2 percent of GDP), it remains below IMF’s initial target at 0.6 percent of GDP. Albeit, we believe emerging signs of economic fallout post breakout of COVID-19, would render some relaxation.
Primarily, total revenue growth at 31 percent in FYTD to PKR 4.7 trillion (9MFY19: PKR 3.6 trillion) aided the contraction in deficit, translating into 10.7 percent of GDP vs. 9.3 percent last year.
Governments tax revenues witnessed a 14 percent YoY jump with indirect taxes (+11 percent YoY to PKR 1.9 trillion), sales tax (+18 percent YoY to PKR 1.2 trillion), and direct taxes (+15 percent YoY to PKR 1.1 trillion; higher number of tax payers), leading the uptick.
Moreover, the government collected PKR 1.1 trillion in non-tax revenues, displaying a massive jump of 160 percent YoY. This was particularly generated by the State Bank of Pakistan posting a profit of PKR 635 billion in 9MFY20 against PKR 138 billion last year (+360 percent YoY), tagged with collection of PKR 113 billion from the Pakistan Telecommunication Authority vs. a meager PKR 16 billion in 9MFY19 (+599 percent YoY).
In contrast, total expenditures went up by 16 percent YoY to PKR 6.4 trillion (14.5 percent of GDP vs. 14.3 percent of GDP in 9MFY19). Further breakup revealed that current expenditure underwent an uptick of 17 percent YoY of which markup payments rose by 29 percent YoY and defence expenses went up by 4 percent YoY. In addition, development expenditure and net lending undertaken by the government jumped up by 14 percent YoY.
Total PSDP expenditure in 9MFY20 arrived at PKR 722 billion (+25 percent YoY) with provincial expenditure at PKR 382 billion, outdoing federal disbursement of PKR 340 billion.
Decline of 23 percent YoY in deficit during 3QFY20
We also highlight that all four provincial governments recorded a budget surplus of PKR 344 billion during 9MFY20, with expenditures set at PKR 2.1 trillion as compared to cumulative revenues of PKR 2.5 trillion. While Punjab remained the only province to record a deficit in 3QFY20 at PKR 30 billion.
Pertinently, budget deficit during 3QFY20 settled at PKR 691 billion (1.5 percent of GDP), depicting a decline of 23 percent YoY vis-à-vis PKR 893 billion in SPLY.
Total revenues of the government in 3QFY20 arrived at PKR 1.5 trillion (3.4 percent of GDP), up by 16 percent YoY from PKR 1.3 trillion. Observations were similar to 9MFY20 with non-tax revenues in the outgoing quarter depicting an enormous surge of 86 percent YoY to PKR 329 billion alongside a 5 percent jump in tax revenues to PKR 1.1 trillion.
FBR benefitted from an 11 percent YoY rise in direct taxes to PKR 362 billion in 3QFY20 whereas collection from sales tax and indirect taxes went up by 8 percent and 1 percent YoY to PKR 384 billion and PKR 589 billion, respectively.
Total expenditure in 3Q remained stagnant over same period of last year (PKR 2.1 trillion; 4.9 percent of GDP) with an 8 percent decline in defense expenditure to PKR 273 billion and 4 percent upturn in current expenditure to PKR 1.9 trillion.
Albeit, some noteworthy escalation was seen in social protection expenditure (at PKR 14 billion in 3QFY20, up by 23x YoY from PKR 591 million and 20x QoQ from PKR 701 million) as the government increasingly focused on sheltering livelihood (particularly of daily wage earners) in the wake of Coronavirus. This took the 9MFY20 expenditure under this head to PKR 15 billion (up by 9x YoY with further growth foreseeable).
Fiscal Deficit to Reach at 8.8pc of GDP during FY20
Going forward, in 4QFY20 we are expecting a budget deficit of ~PKR 2.04 trillion (4.8 percent of GDP) taking the FY20 budget deficit to nearly 8.8 percent of GDP (PKR 3.73 trillion) with total revenue expectations at PKR 5.57 trillion while total expenditure forecast at PKR 9.30 trillion.
The drastic increase in budget deficit is on account of the prevailing pandemic situation whereby revenue collection is set to undergo a considerable decline of 33 percent YoY to PKR 880 billion during 4QFY20 as compared to PKR 1.3 trillion in same period last year. On the other hand, total expenditure during 4QFY20 is expected to witness an uptick of 3 percent YoY to PKR 2.9 trillion, out of which current expenditure is likely to post a 23 percent YoY growth to PKR 2.82 trillion.
