Failing to meet the performance criteria set by the International Monetary Fund (IMF), the country ran a primary budget deficit of Rs653.6 billion in 2020-21, according to the Ministry of Finance.
The IMF places great emphasis on the primary balance — which is the fiscal balance adjusted for net interest payment on public debt — as it reflects the government’s ability to honour its immediate obligations without obtaining additional loans.
As opposed to the IMF’s performance criteria of a Rs246bn surplus, the primary balance remained -1.4 per cent of GDP in 2020-21. In 2019-20, the country had recorded a primary deficit of Rs757bn (-1.8pc).
The overall fiscal deficit was Rs3.4 trillion in 2020-21, up 0.8pc from a year ago in absolute terms. The fiscal deficit as a percentage of GDP in 2020-21 was 7.1pc as opposed 8.1pc in the preceding fiscal year.
According to Topline Securities Research Director Syed Atif Zafar, this has been the first time Pakistan reported a fiscal deficit of more than 7pc of GDP for three years in a row since 1987-88 (i.e. in 33 years).
“We expect the fiscal deficit to clock in at around 7-7.5pc of GDP in 2021-22,” said Mr Zafar.
To bridge the budgetary gap of Rs3.4tr, the federal government used a mix of external and domestic financing. About 39.3pc (Rs1.3tr) of the overall deficit was bridged by means of external financing while 60.7pc (Rs2tr) was financed through domestic sources consisting of both bank and non-bank avenues. In 2019-20, however, the share of external financing in filling the budgetary hole was only 26.5pc.
In line with the IMF prescription, the four provinces managed to post a cumulative budgetary surplus of Rs313.6bn, which helped keep the overall fiscal deficit to 7.1pc of GDP in 2020-21.
Total revenue mobilisation amounted to Rs6.9tr, up 10pc from a year ago. The year-on-year increase in direct taxes and sales tax was 13.6pc and 24.6pc, respectively.
Non-tax revenues – after adjusting for petroleum levy that was recently classified as part of non-tax mobilisation – decreased 20.8pc on an annual basis. The main reason for the one-fifth decline in non-tax revenue was the year-on-year drop of 30.4pc in the surplus profit that the federal government received from the central bank.
