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Pakistan Economy: Pak Fiscal Deficit at 1.1% of GDP in 1QFY21; Primary Balance of 0.6% of GDP inline with IMF’s target

• Pakistan’s Fiscal Deficit has clocked in at 1.1% of GDP (or Rs484bn) in 1QFY21 as compared to 0.7% of GDP (or Rs286bn) in 1QFY20.
• While the overall deficit is higher compared to last year’s, the government has managed to keep Primary Balance at 0.57% of GDP (or Rs258bn), which is inline with pre COVID-19 IMF’s target. 
• Punjab and Baluchistan provinces recorded budgetary surplus during 1QFY21, while Sindh and KPK recording budgetary deficits during the period.
• The government financed Rs161bn of the overall deficit through net External Financing and Rs333bn through net Internal Financing.
• We expect Pakistan’s fiscal deficit to clock in at around at 8.0-8.5% of GDP in FY21 compared to 8.1% of GDP in FY20.

Total Revenues down 1% YoY in 1QFY21

• Tax Revenues declined by 2% YoY during the quarter, wherein Direct Taxes and Sales Tax increased by 2% YoY and 8% YoY, respectively. However, Federal Excise Duty (FED) and Sales Tax on Services dropped by 8% YoY and 11% YoY, respectively. 
• Non-Tax Revenues increased by 3% YoY on the back of increase in Petroleum Levy by 110% YoY. That said, Surplus profit from SBP dropped by 43% YoY.

Total Expenditures up 11% YoY in 1QFY21

• Current Expenditures increased by 15% YoY during the quarter, where Mark-up Payments were up 30% YoY even though interest rates have sharply come down. We believe this is largely owing to realization of coupon payments on PIBs sold during 1QFY20 and higher borrowing.
• The government expenditure (minus Markup and Defense) also increased by 10% YoY during the quarter, however Defense expenditures came down by 7% YoY.

Statistical Discrepancy helped keep deficit in check

The government has recorded a surplus Statistical Discrepancy of Rs65bn (0.14% of GDP) during 1QFY21 compared to a deficit of Rs46bn (0.10% of GDP) last quarter giving government a swing of Rs110bn from 1QFY20.