AKD Securities Limited Equity Research – Daily Report

Karachi, January 08, 2019 (PPI-OT): Pakistan Economy: Another fiscal adjustment at the doorstep

Policy action and material developments have centered on the external side, where we expect the GoP to now shift focus on the fiscal side (possibly nudged by IMF negotiations), with another mini-budget on the horizon.

The last round of fiscal adjustment (i.e. mini-budget in Sep’18, 2.1% of GDP) seems insufficient, considering interest and exchange rate have greatly adjusted since. Also, the latest data read on tax collection suggests revenue shortfall of PkR111bn in 5MFY19, signifying the need for sturdier fiscal measures.

Accommodating the last fiscal adjustment and current macro-backdrop, our estimates for FY19F fiscal deficit comes at 6.3% of GDP, where debt servicing over-run (37.5% higher than budgeted) remains a major drag on fiscal discipline.

With our estimates suggesting a primary deficit of 0.6% of GDP, we expect the next leg of fiscal adjustment would be in the range of 0.6-0.8% of GDP (PkR234-312bn).

Key fiscal measures likely to be part of upcoming adjustment include i) rationalization of GST and PL on POL products, ii) restoration of GST on cellular services (subject to SC approval), iii) further FED on cigarettes possibly on tier-II category, iv) rollback of special exemptions awarded under several SROs, and v) withdrawal of untargeted subsidies.

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