BUDGET BRIEF

BY
MUHAMMAD SULAIMAN
DCIR
 Finance
Ministry

Revenue
Finance
Wing
Wing
(FBR)

Customs IRS

Income
Sales Tax FED
Tax
 Budget

Monetary Fiscal
Policy Policy

Finance
State Bank
Ministry

Revenue
Exchange Finance
Interest rate Inflation Wing
Rate Wing
(FBR)

Revenue Expenditur
measures e
Key Concepts
• GDP
• Budget Preparation by Federal Government and Central Bank
• Monetary Policy
• State Bank of Pakistan
• Fiscal Policy
• Finance Division
• Revenue Division
• Revenue and Expenditure
• Deficits
• Inflation and CPI
Economy of Pakistan
• 5th most populous country in the world
• 23rd largest Economy in the world
• 40th largest in terms of gross domestic product.
• GDP per capita of $1,357 in 2019 (ranks 154th )
• Undocumented economy estimated at 36% of overall economy
• Economy is semi-industrialized
 GDP for Financial Year 2018-19
• The provisional GDP growth rate for FY19 is estimated at 3.3%
• Agriculture 0.9%,
• Industry 1.4%
• Services 4.7% •
• Agricultural sector: The agriculture sector grew by 0.85% compared to 3.81% last
year. The crops sector has witnessed negative growth of 4.4% during FY19 against a
positive growth of 3.83% during FY18. This is mainly due to negative growth (-6.6% in
FY19 vs 3.57% in FY18) important crops due to decline in production of cotton, rice and
sugarcane.
• Industrial sector: During FY19, the provisional growth in industrial sector has been
estimated at 1.40% as compared to 5.8% growth in FY18. This is mainly because of
decline in growth to 2.06% (6.13% growth in FY18) in large scale manufacturing sector
while mining and quarrying sector has witnessed a negative growth of 1.96% (3.04%
growth in FY18).
• Services sector: Provisional estimates has shown that the services sector posted a
growth 4.71% during FY19 against growth of 6.43% in FY18. Wholesale and Retail
Trade sector grew at a rate of 3.11% in FY19 versus a growth of 7.51% in FY18.
Transport, Storage and Communication sector has registered a growth of 3.34% against
growth of 3.58% achieved in FY18.
Twin Deficits
• Fiscal deficit: Earning – Expenditure (it also includes other
liabilities and payments due on part of government)
• Budget deficit: Government spending more than it is earning

Budget
Deficit

Fiscal
Defici
Other
Liabilities
t
+
Payments
• Current Account Deficit: Exports – Imports (it also includes
other payments other than imports)
• Trade deficit: Imports are greater than exports

Trade
Deficit Curren
t
Accou
nt
Other
Payments Deficit
Economic Indicators
Federal Receipts
Break-up of Tax Revenue
Federal Expenditure
MACRO-ECONOMIC HIGHLIGHTS
►Pakistan’s GDP growth tapered off – Pakistan’s economy slowed down sharply in the current
fiscal year, hitting nine-year low at 3.3% and missing the 6.2% target by a wide margin. IMF has
forecasted that the Country’s GDP growth will slow down to 2.7% in the following fiscal year.
► Contracting current account deficit – Pakistan’s current account deficit declined to US$
11.586 billion in July-April FY19 as compared to US$ 15.864 billion in the same period last year
showing a contraction of 26.9%. This contraction can be attributed to reduced imports and growth
in workers’ remittances during the year.
► Slight decline in trade deficit - During July-April FY19, Pakistan’s trade deficit decreased by
US$ 1.879 billion to US$ 23.934 billion in the current fiscal year compared to US$ 25.813 billion
in FY18.
► Widening fiscal deficit – During first nine months of FY19, consolidated fiscal indicators
performance suggests that total revenue registered zero growth over same period last year, while
total expenditures increased by 8.7% for the same period. Therefore, fiscal deficit as percent of
GDP reached 5.0% as compared 4.3% in comparable period of last year.
► Average Highlight inflation – Average CPI for the period July-March FY19 was 6.79%,
compared to an average of 3.78% for the same period last year. Devaluation of PKR against the
greenback and the relative inelasticity of Pakistani imports are major contributors to the hike
inflation rate during the year.
► Pakistan’s credit rating – S&P Global Ratings lowered its credit rating for Pakistan on 4th
February 2019 to B- from B, partly due to the slow negotiations between the cash-strapped
government and the IMF on a financial support deal.
Missed Targets
• FY19 a year of missed targets
• GDP
• GDP grew by 3.3% against an ambitious target of 6.3%.
• Export
• Exports contracted by 1.3% YoY despite significant currency
devaluation
• Revenue
• Revenue generation remained flat which aggravated the fiscal deficit
• During the (Jul-Mar) period of FY19, total revenues of the government
were 9.3% of GDP compared to 10.3% in the same period last fiscal year.
• Fiscal Deficit
• Fiscal deficit for FY19 is expected to be approx. 7.0% VS a target of
5%.
Stabilization measures
• FY19 was also a year of stabilization measures which yielded
some success
• The government adopted the traditional tools (fiscal and monetary
tightening) for curbing aggregate demand.
• Discount rate increased by 575 basis points during the year.
• FY19E CAD is ~4% of GDP compared to 6.1% in FY18.
• In absolute terms CAD is expected to decline to ~USD 12.5bn
compared to USD 19bn in FY18.
• Public Sector Development Program (PSDP) expenditures were curtailed
significantly and registered a negative growth of 34% YoY
• PSDP in absolute terms declined by PKR 337bn in the nine month
period and an annualized level of PKR 450bn
Inflation (7.0 Jul-Apr)
Series 2
10
9
8
7
6
Series 2
5
4
3
2
1
0
19-Apr 19-Mar 19-Feb 19-Jan 18-Dec 18-Nov
Ease of doing business index
Budget Deficit
Current Account Deficit
• Pakistan’s Current Account Deficit for the ongoing fiscal year
shows mitigation of almost ~27% in 10MFY19 compared to
the first ten months of FY18.
• Contraction due to reduction in trade deficit coupled with
increase in the workers remittances.
• Workers’ remittances saw an uptick of ~8.5% compared to the
same period last year.
INFLATION & MONETARY POLICY
• Despite seeing one of the most aggressive monetary tightening policies in Asia since 2018, the
Country’s inflation rose to a five year high of 8.8% on year-on-year basis in April 2019 as
compared to 9.4% in the previous month and 3.7% during corresponding month of last year
• The current account deficit narrowed to US$ 9.6 billion in Jul-Mar FY19 as compared to a deficit
of US$ 13.6 billion during the same period last year, a fall of 29%.
• Despite the improvement in the current account and a noticeable increase in official bilateral
inflows, the financing of the current account deficit remained challenging. Consequently, reserves
declined to US$ 8.8 billion as of 10th May 2019 from US$ 10.5 billion at end-March 2019.
• The overall fiscal deficit is likely to be considerably higher during FY19 as compared to last year.
From a monetary policy perspective, a growing portion of the fiscal deficit has been financed
through borrowings from SBP. In absolute terms, the government borrowed Rs 4.8 trillion from
SBP during 1st Jul-10th May FY19, which is 2.4 times the borrowing during the same period last
year.
• The consumer price index (CPI) rose 9.4% in March 2019 and 8.8% in April 2019, on a YOY
basis.
• In this backdrop, the MPC had decided to increase the policy rate to 12.25% effective 21st May
2019.
REMITTANCES
FDI
Expected Measures
• Government Target of growth in 2019-20 at 4% of GDP
• IMF made forecast of 2.7% growth in GDP.
• Currency devaluation during IMF program.
• Electricity and gas prices to be raised for full cost recovery
and elimination of circular debt.
• Further increase in inflation in FY20
• Bridging the savings investments gap
• Increase in exports
• Curtailing non productive expenditures
• Reducing the losses of PSEs or outright divesting them etc.
Thank You