Karachi, November 10, 2021 (PPI-OT): Budget deficit for 1QFY22 narrows slightly to 0.8% of GDP

Pakistan’s budget deficit narrowed to 0.8% of GDP in 1QFY22 from 1.1% of GDP during SPLY as tax collection improved 37% YoY, primarily from sales taxes and duties. On the other hand, the primary surplus, albeit positive, has nearly halved to 0.3% of GDP and it continues to be one of the major focal points in government’s ongoing discussions with the IMF.

Overall revenue collection dropped 5% from the previous quarter as non-tax revenue collection declined sequentially. It is fairly evident from the quarterly print that petroleum levy collection has not been enough as per the budgetary requirement. Resultantly, there is a high likelihood that more fuel rate hikes on account of petroleum levy will follow as we move towards Fund’s program resumption.

Despite a sizeable decline in debt servicing expenditure during 1Q to Rs623bn, down 16% YoY, current expenditure rose 9% YoY to Rs1.97tn as more spending was witnessed towards defense, pension and subsidies. Needless to mention that PSDP spending jumped by a significant quantum (63%) from last year.

We expect the fiscal deficit for FY22 to clock in at 7.1% of GDP. Government has started to enhance its efforts towards a contractionary fiscal policy. We believe, documentation of economy under the ambit of recently announced Rs120bn relief package on 3 essential items through a digital platform will enable a better transmission of fiscal policy in the future.