Pakistan’s Fiscal Deficit to Surge, Tax Revenue to miss Target
Pakistan’s fiscal deficit will surge to 9% within the ongoing financial year, the country’s de facto minister of finance said on Friday, as its economy reels from the fallout of the coronavirus crisis.
Fear of an economic meltdown is claimed to be the most reason behind ending the shutdown at a time when the country’s curve, or rate of infections, is edging up sharply.
“The expectation of the deficit we had before the coronavirus was 7.6%. Now, after corona, we expect the deficit will touch 8% plus which it’d be 9%,” said Abdul Hafiz Shaikh, an adviser to Pakistan’s Prime Minister on Finance and Revenue, who is effectively the country’s finance minister.
In an interview with Reuters at his office in Islamabad, Shaikh said the coronavirus-hit South Asian economy also will miss a tax income target that had recently been downwardly-revised and agreed to with the IMF, which gave the country a three-year, $6 billion bailout last year.
Pakistan is about to gather 3.9 trillion Pakistani rupees ($24.54 billion) in taxes, 19% below the downwardly revised target of 4.8 trillion Pakistani rupees ($30.20 billion), he said. The International fund also gave Pakistan a $1.386 billion rapid financing package last month to tackle balance-of-payments problems amid economic fallout from the virus.
The country’s economy is now projected to contract 1% to 1.5% within the ongoing financial year, Shaikh added, officially corroborating earlier IMF estimates of the extent of the effect of the pandemic on Pakistan’s economy. Pakistan was targeting growth of 2.4% in financial year 2019-20 because it struggled to restructure its economy, which was affected by yawning accounting and monetary deficits and depleting foreign reserves.
“Revenue has taken a hit. Exports have taken a hit. Remittances have taken a success, and, above all, our people are suffering,” Shaikh said. Analysts say support in term of swift loans, aid and debt relief from development partners, friendly states, financial institutions and G20 countries is probably going to make a fiscal space for Pakistan to keep its economy afloat.
The de facto minister said Islamabad had applied for debt relief that had been offered by the G20 to over 70 countries, adding that it’ll defer a payment of around $1.8 billion for Pakistan for one year. “World Bank and ADB are giving us special packages,” he said, terming it an excellent breather, adding that, “if the creditors aren’t knocking on your door immediately, then you can use this era to undertake and divert that cash into more pressing needs reception.”
The upcoming allow fiscal 2020/2021 is an uphill task Shaikh is to present early June. “The first goal is to stop the corona from affecting our citizens too badly or affecting our economy too badly,” he said, adding he would do his best to undertake maximum secure funds for a cash handout to the poor.
“We need to attempt to keep our industry moving, especially on the export side.” Pakistan has already introduced several packages to bail out business and industry, including over a trillion Pakistani rupee ($6.31 billion) stimulus to assist revive the coronavirus-hit economy and therefore the cash handout to nearly 12 million people.
Although nobody knows how long the coronavirus crisis goes to last, Shaikh said his government would attempt to slash the fiscal deficit within the next budget also as cut expenditures, which could be anywhere including defense.
“This is an ongoing discussion which is underway,” he said.