ISLAMABAD - Pakistan’s budget deficit was recorded at Rs822 billion (1.8 percent of the GDP) during first five months (July to November) of the current fiscal year (2020-21).

The country’s budget deficit stood at Rs822 billion during July to November period of FY2020-21 as compared to Rs676 billion in corresponding period of the last year, said ministry of finance said in its Monthly Economic Update & Outlook (MEUO). The primary balance remained in surplus of Rs216 billion (0.5 percent of GDP) during July-November (0.3 percent of GDP, Rs117 billion last year).

The ministry of finance has warned that economic activities could slow down amid pandemic. “Current outlook ensures economic revival on the basis of continued recovery seen in recent months but there is possibility of slower economic activities especially in services sector depending on the intensity and duration of pandemic”.

According to the report, net federal revenues have witnessed a noticeable increase of 22.2 percent (Rs1391 billion) for July-November, FY2021 (Rs1138 billion last year). Within revenues, non-tax posted a healthy growth of 17.7 percent. Total federal expenditures grew by 14.5 percent to Rs2383 billion during Jul-Nov, FY2021 (Rs2081 billion last year). Within total, current expenditures grew by 15.7 percent mainly due to higher mark-up payments and COVID related spending. On development side, rupee component of PSDP increased by 11.3 percent to Rs 128 billion (Rs 115 billion last year) in utilization during the period.

The report stated that government had missed the tax collection target in first half (July to December) of the FY2021. FBR tax collection achieved 99.8 percent of its half-yearly target. The provisional net tax collection grew by 5 percent to Rs 2206 billion (Rs 2101 billion last year). Fiscal performance remained satisfactory. Currently, the fiscal policy actions are primarily concentrated on relief measures to support businesses stay afloat and to protect vulnerable segments of society. At the same time, the government is focused on containing the fiscal deficit at a manageable level and keeping the primary balance at a sustainable level. 

Government is focused on containing fiscal deficit at a manageable level and keeping primary balance at a sustainable level

According to latest fiscal numbers, healthy growth in non-tax revenues, satisfactory performance of FBR tax collection despite issuance of higher number of refunds and controlling of expenditures other than mark-up payments and COVID related would pave the way to maintain the fiscal deficit within the reasonable limits in coming months.

In recent months, oil prices have been very volatile, international food prices have been rising. However, exchange rate movements remained almost neutral. The impact of rising international food prices was mitigated by government policies focusing on improving the supply stream of food products and improving the functioning of domestic food markets. It is expected that the declining trend in YoY inflation will continue in January within a range of 7.2 to 8.2 percent.

The sudden surge in imports due to the increase in international oil prices and import of additional food products enhanced imports by $ 1.2 billion alone in December 2020($ 5.0 billion) compared to December 2019 ($ 3.8 billion). However, there was no pressure on foreign reserves as current account remained in surplus for first half (July to December) FY 2021. Looking forward, depending on these explanatory factors, imports may remain $ 4.5 – $ 5.0 billion in next month. Exports are expected to stabilize around current levels. But in the baseline scenario, the trade balance is not expected to further deteriorate. Remittance inflows remain strong and continue to provide strong support to the financing of the trade deficit.

The current account posted a surplus of $1.1 billion (0.8 percent of GDP) for July-December FY2021. In December 2020, current account turns deficit ($662 million) due to imports of essential food items, capital goods, oil, and industrial raw material owing to the domestic economic recovery. As per PBS, exports during July-December FY 2021 increased by 5.1 percent to $ 12.1 billion ($ 11.5 billion last year). Pakistan’s exports grew by 19.0 percent ($ 2.4 billion) in December 2020 ($1.9 billion last year). However, in regional countries like India and Bangladesh exports trend showed negative growth in November/December 2020. The textile sector exports had increased by 7.8 percent over the last year. Value added exports increased by 12.8 percent. The decrease in quantities of value-added exports was compensated by higher unit price. The total imports in July-December FY2021 increased to $24.5 billion ($ 23.2 billion last year), thus grew by 5.5 percent. The petroleum group had decreased by 22.3 percent while import of petroleum crude decreased by 25.3 percent in value and increased by 14.8 percent in quantity. Import of petroleum product had increased by 47.4 percent (quantity) and decreased by 16.3 percent (value). 

The food group import jumped by 52.2 percent during Jul-Dec FY2021 reached to $ 3.9 billion ($2.6 billion last year). The government allowed import of wheat and sugar to bridge the local shortages. The import of almost all essential food products-spices, palm oil, tea, milk etc witnessed growth during the period.