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Pakistan Budget FY21: Initial Impressions

• The Federal Budget for FY21 was presented in the National Assembly today.
• The total outlay for FY21 is estimated at Rs7,295bn compared to last year’s budgeted outlay of Rs8,238bn, a contraction of 11%.
• The budget has been slated as a relief budget by the government, where the attempt has been to cushion the economic loss arising because of the COVID-19 outbreak. However, no major announcements in this regard has been made as such.
• The budget has tried to provide relief to the masses through the Ehsaas program (allocation of Rs208bn from Rs187bn in FY20, not a major increase).
• The government has kept aside only Rs70bn for COVID-19 related expenditures.
• The government has not imposed any new taxes in the budget (however at the same time is budgeting a 27% increase in FBR Revenues).
• The government is estimating a Fiscal Deficit at Rs3,195bn for FY21 (7.0% of GDP), which we expect to be in the range of 8.0-9.0%.
• The primary balance also shows a deficit of Rs249bn (0.5% of GDP) for FY21.
• For FY20, fiscal deficit of 12.3% of GDP has been calculated through government revised numbers for the year.
• Total Revenue target has been set at Rs6,573bn (+19% vs. revised FY20 estimate), where FBR Revenues for the year have been estimated at Rs4,963trn (+27% vs. revised FY20 estimate).
• We believe FBR tax collection target looks highly over optimistic in prevailing economic conditions, where we expect FBR to collect Rs4.2-4.4trn during the year. A mini-budget later in the year looks highly probable.
• The government has budgeted Rs450bn under Petroleum Development Levy (PDL) in FY21 vs. Rs260bn revised estimate in FY20.
• Total Current Expenditures are estimated at Rs6,345bn (-14% vs. revised FY20 estimate).
• Interest Expense has been budgeted at Rs2,946bn (+9% vs. revised FY20 estimate), primarily on the back of higher bank borrowing target of Rs917bn (vs. last year’s target of Rs339bn).
• This leaves the Federal Government with a net Rs754bn for its other Current Expenditures and Development Expenditures (a shortfall of Rs393bn in FY20 revised estimates).
• The government has not given any increase in government employees' salary and pensions. This we believe is a major positive signal to control expenses.
• Total Development Expenditures (Federal plus Provinces) target has been set at Rs1,324bn, 18% lower compared to last year’s budget of Rs1,613bn and around 10% higher compared to this year’s utilization.
• The Federal Public Sector Development Program (PSDP) has been budgeted at Rs650bn (+15% vs. revised FY20 estimate).
• With an escalating fiscal deficit under the IMF program, we could potentially see cuts in Development Expenditures during the year.
• The Defense Expenditure has been set at Rs1,289bn, 5% higher compared to revised FY20 estimate.
• The government has set a GDP growth target of 2.1% for the upcoming year.
• The government expects Agriculture to grow by 2.8%, Industries by 0.1% and Services by 2.6%. We expect GDP growth for next year to clock in at 1.5-2.0%.

The Inflation target has been set at 6.5% for FY21.