Fiscal deficit rises by Rs189bn in July-Oct period

Published December 25, 2020
The government on Thursday said continued economic recovery in recent months could be affected by the resurgence of new Covid-19 cases. — AFP/File
The government on Thursday said continued economic recovery in recent months could be affected by the resurgence of new Covid-19 cases. — AFP/File

ISLAMABAD: Putting country’s fiscal deficit at 1.7 per cent of GDP (Rs753 billion) in first four months of current fiscal year, the government on Thursday said continued economic recovery in recent months could be affected by the resurgence of new Covid-19 cases.

“With the resurgence of new cases of coronavirus, still there is a risk of slower economic performance mainly due to halted activities in services,” the Economic Adviser’s Wing of the Ministry of Finance said in its Monthly Economic Update & Outlook (MEUO) released on Thursday.

The report said the overall fiscal deficit during July-October, FY2021 stood at 1.7pc of GDP (Rs753bn) against 1.4pc of GDP (Rs564bn) in the comparable period of last year, showing an increase of Rs189bn or 33.5pc. On the other hand, the primary balance posted a surplus of Rs178bn (0.4pc) during July-October, FY2021 against the surplus of Rs130bn (0.3pc of GDP) in the same period of FY2020, showing an increase of about 37pc, the outlook added.

The MEUO noted that economic recovery — which started at the beginning of the second quarter of the current fiscal year – was keeping its momentum. However, the main risk factor to the situation was the recently observed resurgence of new waves of infections world-wide and also in Pakistan, necessitating imposition of new restrictions on social contacting that may impact on the economic expansion.

Surplus in primary balance up by Rs48bn

“The effects on the economic outlook will depend on the intensity of pandemic and duration of restrictions” the report noted.

It said the economy was currently recovering from two consecutive crises. The first one that continued in most of 2018 and 2019, which compelled necessary macroeconomic adjustments needed to correct the accumulation of unsustainable external balance of payment deficits. The second was associated with Covid-19 global lockdowns — including in Pakistan during February-August — to contain the pandemic. “The recovery from both of these shocks is underway and promises strong growth in the current fiscal year,” the outlook said.

It said the agriculture sector during FY2021 is expected to surpass the growth target of 2.8pc on the back of improved production of sugarcane and rice compared to FY2020 due to timely measures adopted by the government. “Also, on the basis of input availability and better weather forecast, the prospects for growth in agriculture are very encouraging”.

This is supported by recent Suparco’s estimates about better performance of crops in kharif season. For rabi season 2020-21, wheat crop sowing is in progress and is expected to be in time as compared to previous year mainly due to timely termination of cotton and rice crops.

In November 2020, current account remained in surplus ($447 million) for fifth consecutive month. Thus, current account posted a surplus of $1.6bn (1.4pc of GDP) during July-November FY2021 against a deficit of $1.7bn last year (-1.6pc of GDP). Contra­ctions in import payments for both goods and services were the primary factors, coupled with healthy growth in workers’ remittances resulted in surplus of current account.

The report said that industrial activity, measured by the Large Scale Manufacturing (LSM) index was the sector most exposed to external conditions. In every month since July 2020, the year-on-year growth rate of LSM has been positive. Industrial activity has now again fully recovered from the downfall following the preceding balance of payment crises, the report said.

Published in Dawn, December 25th, 2020

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