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Pakistan Economy: Pak reports fiscal deficit at 3.8% of GDP in 9MFY20; Early signs of COVID-19 visible

• The government has reported a fiscal deficit of 3.8% of GDP (or Rs1.7trn) in 9MFY20 compared to a fiscal deficit of 5.0% of GDP (Rs1.9trn) in 9MFY19.
• Importantly, the primary balance during the period clocked in at 0.4% of GDP or Rs194bn (last year was -1.2% of GDP or -Rs463bn), close to the initial target of 0.6% set by the IMF. We believe, IMF is likely to review these targets going forward because of the implications of COVID-19 outbreak.
• In the 3QFY20, the fiscal deficit came in at 1.6% of GDP compared to 2QFY20’s fiscal deficit of 1.6% of GDP and 1QFY20’s fiscal deficit of 0.7% of GDP.
• All the four provinces recorded a budgetary surplus during the 9MFY20, while only Punjab recorded a budgetary deficit in 3QFY20.
• During the 9MFY20, Total Revenues increased by 31% YoY, where the improvement was led by 14% YoY higher Tax Revenues (Mar-2020 revenues partially affected by COVID-19) and 160% YoY higher Non-Tax Revenues.
• Looking into further breakup of revenues, government collected 15% YoY higher Direct taxes, 18% YoY higher Sales Tax and 40% YoY higher Petroleum Levy during 9MFY20. In 3QFY20, the same were down by 16% QoQ, 16% QoQ and 17% QoQ, respectively.
• The government hugely benefitted from 360% YoY higher profits from State Bank of Pakistan (SBP) in 9MFY20 (down 13% QoQ in 3QFY20), which is around 1.4% of GDP.
• On the expenditures front, Total Expenditure increased by 16% YoY. Current Expenditures increased by 17% YoY, where Mark-up Payments were up 29% YoY and Defense Expenditures were up 4% YoY. Excluding these items, government’s own expenses increased by 14% YoY during 9MFY20.
• The  decline in interest rates helped the government reduce the interest bill by 16% QoQ during 3QFY20.
• The Development Expenditure remained steady, where growth of 14% YoY was witnessed in 9MFY20. In 3QFY20, the same declined by 6% QoQ.
• In the wake of COVID-19, government’s expenses on Social Protection during the 3QFY20 clocked in at Rs13.9bn (vs. Rs701mn in 2QFY20 and Rs547mn in 1QFY20).

We expect Pakistan’s fiscal deficit to clock in at 9.0% of GDP in FY20 due to implications of COVID-19 on both revenues and expenditures.