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Pakistan Economy: Pak fiscal deficit at 8.1% of GDP in FY20; Lower-than-expected on lower utilization of COVID relief package

• Pakistan’s fiscal deficit has clocked in at 8.1% of GDP (or Rs3.38trn) in FY20 compared to a fiscal deficit of 8.9% of GDP (or Rs3.45trn) in FY19.
• The deficit is lower than the 9.1% of GDP envisaged by the government owing to lower utilization of the Rs1.24trn COVID-19 relief package. As per media reports, around Rs480bn could not be spent during the year. 
• The primary deficit for the year clocked in at 1.8% of GDP or Rs757bn (last year was 3.5% of GDP or Rs1,354bn).
• In 4QFY20, the fiscal deficit came in at 4.3% of GDP compared to 9MFY20 fiscal deficit of 3.8% of GDP due to implications of COVID-19 on both revenues and expenditures.
• Sindh and Baluchistan recorded a budgetary surplus during FY20, with  Punjab and KPK recording budgetary deficits during the period.
• Total Revenues increased by 28% YoY in FY20, where the improvement was led by 257% YoY higher Non-Tax Revenues which includes Rs936bn surplus profit from SBP. 
• The Tax Revenues increased by only 6% YoY during the year, where they declined by 12% YoY in 4QFY20 owing to COVID-19 outbreak. The government collected 5% YoY higher Direct Taxes, 9% YoY higher Sales Tax and 42% YoY higher Petroleum Levy during FY20. In 4QFY20, as expected due to lockdown Direct Taxes and Sales Tax were down by 16% YoY and 15% YoY, respectively while Petroleum Levy was up 47% YoY.
• On the expenditures front, Total Expenditure increased by 16% YoY in FY20. Current Expenditure increased by 20% YoY, where Mark-up Payments were up 25% YoY and Defense Expenditures were up 6% YoY.  In 4QFY20, Current Expenditure is up by 55% QoQ and 27% YoY due to COVID-19 related expenses.
• The Development Expenditure remained steady (-1% YoY) in FY20, with 4QFY20 expenses rising by 37% QoQ but down 21% YoY.
• In spite of the decline in interest rates, government interest bill increased by 24% QoQ and 17% YoY during 4QFY20 owing to greater borrowing at higher rates and interest payment schedule.

We expect Pakistan’s fiscal deficit to clock in at around 8.5% of GDP in FY21 due to continuing implications of COVID-19.