Fiscal deficit falls to 2.9pc in 7MFY21

Published April 25, 2021
The country’s fiscal deficit fell to 2.9 per cent of GDP in the first seven months of FY21 compared to 3.2pc in the corresponding period last year. — File photo
The country’s fiscal deficit fell to 2.9 per cent of GDP in the first seven months of FY21 compared to 3.2pc in the corresponding period last year. — File photo

ISLAMABAD: The country’s fiscal deficit fell to 2.9 per cent of GDP in the first seven months of FY21 compared to 3.2pc in the corresponding period last year mainly due to substantial increase in net federal revenue receipts and effective management of expenditures.

The Ministry of Finance in its monthly economic update and outlook, released on Saturday, observed that the prospects of economic growth are showing visible signs of improvement; however, the third wave of the pandemic is posing some downward risks.

It said the primary balance posted a surplus of Rs416 billion (0.9pc) during July-January 2020-21 against the surplus of Rs153bn (0.3pc of GDP) in the same period of FY20, showing a visible improvement.

The outlook says the declining trend in inflation noted in recent months was interrupted in February. Thus both year-on-year and month-on-month inflation increased. Recently, the government implemented policy measures to improve the functioning of some segments of food market and to re-enforce the supply chain of particular food products.

On the other hand, international commodity prices have recently been on a rising trend. In the last four months, oil prices and international food prices have been rising continuously. In February-April 2020 period, the international commodity prices were declining and during that period the CPI level actually declined.

This low base effect may temporarily push year-on-year inflation higher in the next few months. However, the government measures to ensure smooth supply especially through Ramazan Package will ease out inflationary pressures. For next month it is expected to remain between 7.9pc and 9.5pc.

Falling cotton output

The downside risk to cotton production will hamper targeted growth in agriculture sector. Industrial activity year-on-year growth rate of large-scale manufacturing (LSM) remained positive since July 2020. The growth of industrial activity is in line with the strong cyclical recovery observed in Pakistan’s main trading partners. It is expected that this recovery will continue in the coming months, providing the absence of a new upsurge of Covid-19 that may require restrictions on economic activity.

On the external side, during July-February FY21, exports of goods and services, as compiled in the Balance of Payments reached $19.9bn as compared to $20.3bn in the same period of last year. Likewise imports of goods and services reached $37.3bn this year against $35.7bn last year, which represents an increase of 4.5pc.

However, in February 2021, 3.2pc growth was seen on year-on-year basis. Exports are expected to increase following export-oriented government policies, while imports are also expected to increase further on the back of recovery of the domestic economy, recent increases in international commodity prices and imports of food items to stabilise domestic food markets.

Thus, trade balance is expected to slightly deteriorate but expected strong inflows of remittances will able to cover the trade deficit.

In 9MFY21 the consolidation policy helped in preserving fiscal discipline, increasing revenues, and controlling expenditures. On the revenue side, the Federal Board of Revenue (FBR) tax collection continues to improve, having exceeded the eight-month target by Rs17bn.

Eight months performance indicates that it will remain on track and the current fiscal year would end up meeting the set target. However, the increase in Covid infection and related containment measures may pose certain challenges, especially the expenditure side may come under pressure.

Higher economic growth

According to the report, the expectations of economic recovery are strengthening on the basis of improvement in business confidence evident from industrial growth. The government’s fiscal stimulus thus succeeded in improving economic as well as social prospects.

Therefore, the State Bank of Pakistan in its recent Monetary Policy Statement is now projecting higher growth in FY21 compared to its previous anticipation. As the third wave of pandemic is posing downside risk, the government timely measures combined with the observance of SOPs by the general public will be helpful in continuation of economic recovery along with decelerating inflationary pressure and preserving external balance, added the report.

The Monthly Economic Indicator (MEI) is based on combining monthly data of indicators that are proven to be correlated with GDP at constant prices. It should be noted that some of the data underlying the February MEI are still provisional and may be revised next month. But based on available data, the MEI shows consistent growth in February. With downward risk of third wave, if MEI flattens out in coming months, economic growth in the current FY is expected to surpass its target.

Published in Dawn, April 25th, 2021

Now you can follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

March in Pindi
Updated 26 Nov, 2022

March in Pindi

WITH the chief’s appointment out of the way and the army intent on staying out of politics, the fight is now down...
Tough IMF position
26 Nov, 2022

Tough IMF position

THE IMF has made it clear that Pakistan’s “timely finalisation of the [flood] recovery plan” — the key ...
The youth vote
26 Nov, 2022

The youth vote

PAKISTAN is an overwhelmingly young nation, with about 64pc of the population under 30. Yet our political system has...
Hard reset
Updated 26 Nov, 2022

Hard reset

IT is done. What should have been a routine matter in simpler times had this year become a vortex that seemingly...
Order of precedence
25 Nov, 2022

Order of precedence

IN Pakistan as well as abroad, there are few illusions about who actually calls the shots in this country. This...
Politicised police
25 Nov, 2022

Politicised police

AN important case is being heard at the Supreme Court these days, whose outcome could have a far-reaching impact on ...