EUR 10.00 For Business Accounts Only

Pakistan Economy: 2QFY19 Budget Deficit up at 1.3% vs. 1.0% last year

• The Govt. has reported 2QFY19 Budget Deficit at 1.3% of GDP, which is higher than the Budget Deficit reported in the corresponding period last year of 1.0% of GDP. The growth in budget deficit is primarily on account of decline in total revenues of 10% to Rs1.2tn while total expenditures have remained flat at Rs1.7tn. Resultantly, in absolute terms, the budget deficit is up 37% to Rs488bn (or 1.3% of GDP) for 2QFY19.
• Total tax revenues for the outgoing quarter have declined likely due changes in policies post change in government (two post budget economic packages have been announced) and slowdown in economy (GDP growth for FY19 estimated at around 3.0% compared to 5.2% in FY18).  
• The largest revenue head, Direct Taxes was down 3% due to both ongoing economic slowdown and lower tax rates. Also, both Sales Tax and Petroleum Levy were down 5% and 24% partly due to lower taxes on petroleum products. Taxes on International Trade (like custom duties) witnessed rise of 16% amid currency devaluation and increase in duties by Govt. on imports of luxury goods.
• Total Expenditures have remained flat due to significant decline in Development Expenditures by 33% to Rs260bn. On the other hand, Current Expenditures were up by 15% to Rs1.5tn.
• Within Current Expenditures, Mark-up Payments (interest on debt) was up by significant 21% to Rs370bn due to both hike in domestic interest rates and currency devaluation last year. Further, defense expenditures were up 23% YoY. Excluding both mark up payments and defense expenditures, current expenditures escalated by 11% mainly due to 15% jump in provincial expenditures.
• Going forward, the Budget Deficit is expected to increase in coming quarters. The govt. is forecasting FY19 Budget Deficit of 6.3% or more, which indicates a Budget Deficit of 2% for next two quarters each.