Pakistan's fiscal deficit to surge, tax revenue to miss target this year: Hafeez Sheikh

Published May 9, 2020
A shopkeeper breaks his fast behind a half-open roller shutter, as Ramadan begins during a lockdown in efforts to stem the spread of the coronavirus in Karachi. — Reuters
A shopkeeper breaks his fast behind a half-open roller shutter, as Ramadan begins during a lockdown in efforts to stem the spread of the coronavirus in Karachi. — Reuters

Pakistan’s fiscal deficit will surge to nine per cent in the ongoing fiscal year, Adviser to the Prime Minister on Finance Dr Abdul Hafeez Sheikh said on Friday, as the economy reels from the fallout of the coronavirus crisis.

With the national tally of confirmed cases of Covid-19 rising to 28,551 and 623 deaths being reported, the government has announced it will start lifting the countrywide lockdown from Saturday (today) in a bid to restart economic activity.

Fear of an economic meltdown is said to be the main reason behind ending the shutdown at a time when the country’s curve, or rate of infections, is edging up sharply.

“The expectation of the deficit we had prior to the coronavirus was 7.6pc. Now, after corona, we think the deficit will touch 8pc plus and that it might be 9pc,” said Sheikh.

In an interview with Reuters at his office in Islamabad, Sheikh said the country will also miss a tax revenue target that had recently been downwardly revised and agreed to with the International Monetary Fund (IMF), which gave the country a three-year, $6 billion bailout last year.

The government is set to collect Rs3.9 trillion ($24.54bn) in taxes, 19pc below the downwardly revised target of Rs4.8tr ($30.20bn), he said.

The IMF also gave Pakistan a $1.386bn rapid financing package last month to tackle balance-of-payment problems amid economic fallout from the virus.

The country’s economy is now projected to contract 1pc to 1.5pc in the ongoing fiscal year, Sheikh added, officially corroborating earlier IMF estimates of the extent of the effect of the pandemic on the economy.

The government was targeting growth of 2.4pc in fiscal year 2019-20 as it struggled to restructure the economy, which was suffering from yawning current account and fiscal deficits and depleting foreign reserves.

“Revenue has taken a hit. Exports have taken a hit. Remittances have taken a hit, and, above all, our people are suffering,” Sheikh said.

Analysts say support in term of swift loans, aid and debt relief from development partners, friendly states, financial institutions and G20 countries is likely to create a fiscal space for Pakistan to keep its economy afloat.

The adviser said Islamabad had applied for debt relief that had been offered by the G20 to over 70 countries, adding that it will defer a payment of around $1.8bn for Pakistan for one year.

“World Bank and Asian Development Bank are giving us special packages,” he said, terming it a great breather. “If the creditors are not knocking on your door right now then you can use this period to try and divert that money into more pressing needs at home,” he added.

The upcoming budget for fiscal 2020-2021 is an uphill task Sheikh is to present in early June.

“The first goal is to prevent the corona from affecting our citizens too badly or affecting our economy too badly,” he said, adding he would do his best to try to secure maximum funds for a cash handout to the poor. “We have to try to keep our industry moving especially on the export side.”

The government has already introduced several packages to bail out business and industry, including over a trillion rupee ($6.31bn) stimulus to help revive the coronavirus-hit economy and the cash handout to nearly 12 million families.

Although no one knows how long the coronavirus crisis is going to last, Sheikh said his government would try to slash the fiscal deficit in the next budget as well as cut expenditures, which could be anywhere including defence.

“This is an ongoing discussion which is underway,” he said.

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