Pakistan Economy : Major fiscal slippages in FY18; painful measures ahead
- Pakistan’s FY18 fiscal deficit of 6.6% came in well above the consensus expectations of 6.3% of GDP. While expenditure overrun and cumulative provincial deficit are not surprising in an election year, revenue generation undershot budgetary expectation by a big mark. Our key concern is deterioration in primary deficit (2.2% of GDP in FY18).
- Non-tax revenues remained the single largest source of shortfall of revenue generation while expenditure overrun on defense (+16% YoY), and debt servicing (+20%) are the two major sources of slippages.
- The sources of deficit financing though remained tilted to domestic sources while external project/program borrowing also supported deficit financing (35% of total).
- We believe interim budgetary measures, though deeply unpopular and inflationary, are on the cards with primary focus on generating more revenue. Pakistan’s expenditure profile seems sticky and offers limited room for maneuvering.
- Aligning the interest of federal and provincial governments on revenue generation & expenditure under the ambit of 18th Constitutional Amendment remains crucial for long-term sustainability of fiscal balance.
BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.
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