Pakistan's budget deficit in FY25's 9 months at 2.4% of GDP

Improvement in the primary balance during the current fiscal year on back of the State Bank of Pakistan's higher profits helped the government curtail the budget deficit to around 2.4% of the gross domestic product during the nine months of the current fiscal year compared with 3.7% deficit of the same period last year.

According to the figures released by the Ministry of Finance on Wednesday, the budget deficit in the nine months ended March 31 shrank to PKR 2,970 billion as compared with PKR 3,902 billion of the same period a year ago. The main reason for the decline was the lowering of the interest rate, increase in non-tax revenue by approximately PKR 1,500 billion due to the State Bank's profits, and increase in the petroleum development levy.

The State Bank of Pakistan's profit in the nine months ended March 31 was around PKR 2,500 billion, up from PKR 973 billion of the same period a year ago, the data said.

Pakistan's budget deficit for the third quarter ended March 31 was around PKR 1,432 billon, down from PKR 1,495 billion of the same period a year ago.

In the third quarter, the primary deficit was around PKR 135 billion, down from PKR 197 billion recorded in the same period a year ago.

The mark-up payments saw a notable 66% decline during the quarter, dropping to PKR 1,297 billion from PKR 3,835 billion of the second quarter, the data said.

However, the total mark-up payments for the nine months of the current fiscal year recorded an increase of 17% to PKR 6,439 billion, from the preceding nine months of the fiscal year.

The State Bank, in its Monetary Policy Statement, said that the Federal Board of Revenue's tax revenue recorded a sizable 26.3% growth during July-April FY25 though it remained below the target.

The Monetary Policy Committee noted that the government raised PDL rates, which is expected to further propel non-tax revenues in the remaining months of FY25. Moreover, estimates from the financing side suggest that overall expenditures remained relatively contained during July-March FY25.

"On balance, the Committee reaffirmed its earlier assessment that while the overall fiscal deficit may remain close to the FY25 target, achieving the targeted primary surplus appears to be challenging. In this context, the MPC highlighted the need for reforms to put the fiscal sector on a more sustainable footing, especially by expanding the tax net and reforming SOEs," according to the Monetary Policy Statement.

"The MPC acknowledged the recent legislations to increase agriculture income tax collection by the provinces, and emphasized on their effective implementation."