Economy: Fiscal tweaks pose challenges
Amongst the key challenges facing the newly formed government is an escalating fiscal deficit (6.6% of GDP for FY18 vs. 5.8% in FY17 – marking the highest ever quantum PkR2.26trn). Riding on the populist wave of an election year, spillovers in provincial deficits (PkR22.4bn deficit vs. budgeted surplus of PkR274bn) along with slippages in non-tax revenue (down 21%YoY) paved the way for a massive breach of the GoP's revised target of 5.6% of GDP. For the PTI's economic policy set-up, enacting fiscal consolidation measures with the priorities of enhancing the tax base (currently less than 1%), while enacting austerity measures, limiting subsidies and reviving sick units serve as key tenets to cut back on expenditures. Even so, burdened by inevitable debt servicing (PkR1.7trn in FY19) as well as defense spending (PkR1.1trn), we maintain our fiscal deficit outlook (estimated at 5.4% of GDP vs. GoP target of 4.9%). We highlight possible constraints on development spending as a clear detriment to foreseeable growth prospects, posing headwinds (for construction and allied industries).
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