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Print

Provincial surplus helps government contain Q1 fiscal deficit

  • Growth responsiveness to stimulus package more than anticipated, economy likely to surpass the annual growth target by a fair margin
Updated 27 Nov, 2021

ISLAMABAD: The Ministry of Planning, Development, and Special Initiative Friday said that the federal government has been able to contain the fiscal deficit at 0.9 percent of the GDP during the first quarter of the current fiscal year, owing to provincial surplus of 0.4 percent of the GDP.

The ministry in its report of the economic review July-September 2021-22, noted that the provincial surplus increased to 0.4 percent of the GDP in the first quarter of 2022 from 0.1 percent of the GDP in the first quarter of the fiscal year, 2021.

Thus, overall fiscal deficit reduced to 0.9 percent of the GDP from 1.2 percent of the last year. Total expenditures on the other hand grew by 12.8 percent on the back of increase in both current and development expenditures.

Total expenditures stood at Rs1,555 billion, which is 12.8 percent higher than the same period a year before and both current and development expenditures grew by 12.8 percent and 37.9 percent, respectively.

Primary consolidated fiscal surplus, after adjusting provincial surplus, stood at 0.2 percent of the GDP, which is lower than last year’s surplus of 0.6percent.

Notwithstanding significant deterioration in the current account, the financial and capital account depicted considerable improvement as net inflows in the financing of current account balance reached to $5.8 billion as against net outflow in the comparable period of last year.

MoF update, outlook: Jul-Aug fiscal deficit stands at 0.9pc of GDP

The report further stated that disappointing factor of fiscal year 2021 was significant fall in the quantity exported. However, during the first quarter of the fiscal year 2022, barring cotton cloth, quantity exported has witnessed an increase.

This is an encouraging trend as the exports sector is responding to a variety of incentives in fiscal year 2022 Budget as well as fully utilising the massive terms of trade advantage available in this period.

Roshan digital accounts are widely accepted by overseas Pakistanis and total inflows on this account surpassed $2.4 billion in just less than two years of its launching and it provided much needed buffer support in the financial account.

The ministry that the economic stimulus package announced by the government has helped in the revival of the manufacturing sector. However, the pace of this recovery is still hindered by supply chain glitches at local and global level.

Agriculture sector was relatively less affected by various Covid-related restrictions. Output of Kharif crops is set to post another record production as suggested by initial estimates. Growth prospects in services sector, which was the most affected by the Covid restrictions, have improved significantly.

Growth responsiveness to stimulus package is more than anticipated and thus, the economy is likely to surpass the annual growth target by a fair margin likely in the range of 5.0 – 5.5 percent. Recent build-up in aggregate demand pressures is reflected through rising demand for imports and heightened credit to the private sector.

Moreover, rising consumption trends of energy and consumer durables during first quarter of 2022 are indicative of robust growth in the economic activity. With easing of Covid restrictions, a cautious recalibration of the macroeconomic policy mix is required to strike a balance between supporting economic growth, ensuring debt sustainability, and advancing structural reforms that will help to improve the external current account prospects and build investors’ confidence.

Rs2.983trn fiscal deficit financed through domestic debt

The momentum in imports is especially endangering the prospects of macroeconomic stability and the existing momentum in exports along with heightened remittance inflows are partially offsetting growing trade imbalances and debt servicing burden.

As far as current account deficit is concerned, the external sector prospects are likely to remain within manageable limit of below three percent of the GDP.

Global commodity prices are expected to remain bullish for the next few months and thus, its pass-through to domestic inflation will keep inflationary situation complex. Improved domestic supply situation of essential items is likely to offset further build-up of inflation albeit at elevated levels of 8.5 percent target for fiscal year 2022.

SBP has anchored the core inflationary expectations well until now, despite some upward pressures from supply management issues and surge in international commodity prices as well as upward adjustment of utility tariffs.

The policy rate remained supportive at large, however, a case could be advanced for upward adjustments. On the fiscal side, improved tax revenue collection is likely to emerge as a key challenge mainly owing to foregone import duties and sales tax collected from the POL products and cash margin requirements on non-essential imports.

Copyright Business Recorder, 2021

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