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