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Pakistan Economy: Higher debt servicing leads to fiscal deficit of 2.3% in 3QFY19

• The Govt. has reported 3QFY19 Budget Deficit at 2.3% of GDP, which is higher than the Budget Deficit reported in the corresponding period last year (2.1% of GDP). Budget deficit turned on higher side mainly on the back of incremental debt servicing. Overall expenditures up by 14% YoY, while revenue growth remained limited to 3% during the outgoing quarter.
• Expenditures during 3QFY19 were up mainly due to increase in debt servicing by 38% YoY, where domestic servicing was up by 12% to Rs525bn and foreign servicing by 74% YoY to Rs58bn. It is important to note here that incremental debt servicing alone contributed Rs161bn or 40bps to the fiscal deficit of 3QFY19.
• Another point to note is that during 9MFY18, previous Govt. was collecting tax revenues on telecom (mobile recharge) and higher taxes on salaried class which remained absent during 9MFY19. We estimate revenue shortfall of Rs125-130bn under these heads, translating into incremental deficit of 30-35bps during 9MFY19.
• Among revenue heads, direct taxes were down 3% YoY to Rs325bn during 3QFY19 and sales tax revenues were down 1% YoY.
• Taxes on international trade were up 16% YoY due to currency devaluation, which in rupee terms has increased taxes for the Govt.
• Among expenditures, defense expenses enhanced by 28% YoY to Rs295bn, which was much anticipated due to border tension between India and Pakistan, while provincial expenditures were down 59% YoY.