Fiscal deficit rises by Rs189bn in July-Oct period

ISLAMABAD: In the first four months of the current fiscal year, putting the country’s fiscal deficit at 1.7% of GDP (Rs753 billion), the government said on Thursday that the continuing economic growth in recent months may be hampered by the revival of new cases of Covid-19.

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

The study reported that during July-October, the total fiscal deficit of FY2021 stood at 1.7% of GDP (Rs753bn) compared to 1.4% of GDP (Rs564bn) in the comparable duration of last year, indicating a rise of Rs189bn or 33.5%. On the other hand, during July-October, the primary balance showed a surplus of Rs178bn (0.4pc) against the surplus of Rs130bn (0.3pc of GDP) during the same period of FY2020, indicating a rise of around 37pc, the outlook added.

The MEUO noted that its strength was sustained by the economic turnaround that began at the beginning of the second quarter of the current fiscal year. The key risk factor for the crisis, however, was the recently witnessed revival of new waves of infections worldwide, as well as in Pakistan, which necessitated the introduction of new prohibitions on social interaction, which could have an effect on economic development.

Surplus in primary balance up by Rs48bn

The consequences on the economic outlook would depend on the pandemic severity and the extent of the controls, as stated in the article.

It said the economy was emerging from two successive crises at the moment. The first, which lasted throughout much of 2018 and 2019, required the required macroeconomic changes necessary to correct the creation of unsustainable foreign payment deficits. The second was correlated with global lockdowns by Covid-19 to suppress the pandemic, including in Pakistan between February-August. “The recovery from both of these shocks is underway and, in the current fiscal year, promises strong growth,” the outlook said.

It reported that the agricultural sector is expected to exceed the growth goal of 2.8 pc during FY2021 on the basis of improved sugarcane and rice production compared to FY2020 due to timely steps adopted by the government. “Also, the prospects for growth in agriculture are very encouraging on the basis of input availability and better weather forecast.”

This is backed by Suparco’s recent projections of improved crop production in the Kharif season. The sowing of wheat crops for the rabies season 2020-21 is underway and is projected to be on schedule relative to the previous year, primarily due to the timely termination of cotton and rice crops.

In November 2020, for the fifth consecutive month, the current account stood in surplus ($447 million). As a result, during July-November FY2021, the current account reported a surplus of $1.6bn (1.4pc of GDP) versus a deficit of $1.7bn last year (-1.6pc of GDP). The main reasons were contractions in import payments for both goods and services, along with stable increases in employee remittances resulting in current account surpluses.

The study reported that, calculated by the Large Scale Manufacturing (LSM) index, industrial production was the sector that was most vulnerable to external conditions. The year-on-year LSM growth rate has been positive per month since July 2020. The study said that economic production has now once again completely recovered from the downfall following the previous balance of payment crises.