FY 2020-21: Budget deficit to be around 7-7.5pc of GDP

ISLAMABAD: Pakistan’s budget deficit has been initially estimated at hovering around 7.5 percent of Gross Domestic Product (GDP) against the revised target of 7 percent for the last financial year 2020-21 mainly because of revenue shortfall and increased expenditure.

The budget deficit can be described as the overall gap between total revenues and expenditure of the country. It remained over 8 percent of GDP since the PTI came into power in Pakistan. The budget deficit is considered a bad omen for the country’s economy because it is being financed through domestic and external borrowings.

“Our budget deficit has been initially estimated at around 7.5 percent of GDP, equivalent to Rs3.41 trillion against the revised target of 7 percent of GDP or Rs3.1 trillion for last fiscal year 2020-21 ended on June 30, 2021,” top official sources confirmed to The News here on Monday.

The finalised provisional figures of budget deficit would be released shortly and it would be hovering around 7 to 7.5 percent of GDP for the last fiscal year. It would largely depend upon three major factors including utilization of development funds, revenue surplus generated by the provinces and finally statistical discrepancy related figures.

Under the IMF program, the budget deficit, especially the primary deficit, is considered a sacrosanct figure in order to gauge the economic health of any loan recipient country. The primary deficit was envisaged to keep at negative 0.5 percent of GDP for the last fiscal year 2020-21.

Pakistan’s budget deficit remained on a higher side during the last three-year rule of PTI and in absolute terms it stood at Rs3,444 billion or 8.9 percent of GDP during the fiscal year 2018-19. The budget deficit stood at Rs3,375 billion or 8.1 percent of GDP for the fiscal year 2019-20.

With the budget deficit figure in absolute terms standing at Rs3.417 trillion or 7.5 percent of GDP, it was the second largest budget deficit figure in the last three years. Now the government was eyeing to curtail the budget deficit at Rs3.42 trillion for the current fiscal year 2021-22 with the provision of Rs570 billion generated by provinces as revenue surplus. So far the provinces have projected just peanuts by showing a surplus of just a few billion rupees, so the projections envisaged by the Centre in the budget documents were already dashed to the ground. Without a revenue surplus of the provinces, the federal budget deficit might escalate to Rs4 trillion or precisely at Rs3,990 billion in 2021-22.

The country’s budget deficit stood at Rs1,652 billion or 3.6 percent of GDP for the first three quarters (July-March) period of the last fiscal year. The primary balance was standing at positive 1 percent of GDP in the first nine months of the current fiscal year.

Now the budget deficit was estimated to escalate to around 7.5 percent of GDP for the last financial year ended on June 30, 2021. Pakistan’s budget deficit could be divided into a 40:60 ratio in the first and second half of any fiscal year. The budget deficit stood at 2.5 percent of GDP in the first half (July-Dec) period of the last fiscal year but the deficit remained on a higher side by hovering around 7.5 percent of GDP ended on June 30, 2021.

The FBR’s tax collection stood at Rs4,732 billion against the fixed target of Rs4,963 billion as shown in the budget documents for 2021-22, so it registered a shortfall of Rs231 billion. The Ministry of Finance had envisaged that the provinces would generate Rs242 billion as revenue surplus and it would be critically important to curtail the deficit at 7.5 percent of GDP otherwise it could go beyond this limit.

“The budget deficit will definitely be less than 8 percent of GDP, for the first time in the last three years under the PTI led regime,” the official concluded.