ISLAMABAD-Pakistan’s budget deficit was recorded at 5.3 percent of the GDP (Rs2222 billion) in ten months (July to April) of the current fiscal year.

The ministry of finance in monthly Economic Update has noted that fiscal deficit reduced to 5.3 percent of GDP (Rs 2222 billion) during July-April period of FY2020 against 5.6 percent of GDP (Rs 2128 billion) last year. Meanwhile, primary balance posted a deficit of Rs 205 billion (-0.5 percent of GDP) against the deficit of Rs 546 billion (-1.4 percent of GDP) last year. “The advent of COVID-19 pandemic towards the end of third quarter of current fiscal year brought significant challenges for the fiscal sector to improve further,” the ministry noted.

Budget deficit is expected to swell in May and June due to the Covid-19 situation in the country. The government had already projected that Pakistan’s budget deficit would swell to 9.6 percent of the GDP due to closure of businesses and restricted economic activity due to the lockdown situation. However, the government would reduce it to 7 percent of the GDP in next fiscal year.

According to the Economic Update, during July-April, FY2020 Rs 2,222 billion has been financed from external and domestic sources to cover deficit. An amount of Rs 837 billion or 2 percent of GDP has been financed from external sources. Similarly, Rs 1,384 billion or 3.3 percent of GDP has been financed from domestic sources.

The outbreak of COVID-19 has adversely affected Pakistan’s economic growth for FY2020. Pakistan’s domestic production and exports declined for decrease in global demand and commodity prices. The slowdown left adverse impact on tax and non-tax revenues; whereas government spending has overrun. However, drop in crude oil prices has reduced the current account deficit and eased out inflationary pressure. The government is utilizing all resources to provide maximum relief to the public. Economic Stimulus Package, Ehsas Emergency Relief Programme, incentive package for SMEs and reduction in petroleum prices, will provide multidimensional positive impacts to all segments of society especially poor families.

The Economic Update stated that coronavirus would result in tax collection shortfall of Rs900 billion. The tax collection target of Rs 4,807 billion, revised to Rs 3,908 billion due to economic slowdown. During July-May, FY2020, FBR tax collection posted a growth of 6.6 percent and reached at Rs3,527.3 billion against Rs 3,310.1 billion in the comparable period of last year. Within total tax collection, domestic tax collection grew by 10.1 percent while customs duty declined by 8.8 percent during the period under review.

The current account deficit has continued to narrow, even though exports have fallen since the COVID-19 outbreak. During July-May FY2020, current account deficit is reduced by 73.6 percent to $ 3.3 billion (1.4 percent of GDP) against $ 12.5 billion last year (4.8 percent of GDP). Exports declined by 6.8 percent to $ 20.9 billion ($ 22.5 billion last year) during the period under review. The exports values were suppressed due to weak terms of trade, despite significantly higher quantum of exports. Imports declined by 18.7 percent to $ 38.9 billion ($ 47.8 billion last year). Consequently, trade deficit reduced by 29.3 percent to $ 17.9 billion ($ 25.4 billion last year). Export of services has declined by 8.5 percent to $ 5.0 billion ($5.5 billion last year). The import of services declined by 23.6 percent and is $ 7.8 billion ($ 10.1 billion last year).

Foreign Direct Investment (FDI) increased by 90.6 percent and reached $ 2.4 billion during July-May FY2020 as compared to $ 1.3 billion last year. The inflows of FDI reached to $ 3075.1 million during July-May FY2020 compared to $ 2626.2 million same period last year, with a growth of 17.1 percent. The outflows of FDI during July-May FY2020 decreased by 50.7% and reached to $673.7 million compared to $ 1366.2 million same period last year. Remittances have reached to $ 20654.5 million during July-May FY2020 against the $ 20103.0 million last year with a growth of 2.7 percent. On Y-o-Y basis, remittances declined by 18.6 percent in May 2020, recorded $1872.9 million ($ 2302.0 million last year). On M-o-M basis, it increased by 4.6 percent in May 2020, over April 2020 ($1790.0 million).

Pakistan’s total liquid foreign exchange reserves had increased to $ 16.9 billion by the end of May 2020, up by $ 2.4 billion over end-June 2019. The breakup of reserves accumulation in May 2020 shows that the State Bank of Pakistan’s reserves stood at $ 10.4 billion ($7.9 billion last year) and $ 6.5 billion ($7.0 billion last year) in commercial bank’s reserves. The reserves provide the import cover of around 3 and half months.