Federal Budget FY21 Budget during a pandemic Friday June 12, 2020 - - PDF document

Federal Budget FY21

Budget during a pandemic

Friday June 12, 2020

Macroeconomic Indicators

– Medium Term Outlook

FY20 FY21 FY22 FY23 FY20 FY21 FY22 FY23 Real GDP Growth

• 0.4%

2.1% 4.0% 4.5%

• 0.4%

2.1% 4.0% 4.5% Inaon 11-12% 6.5% 6.2% 6.0% 11-12% 6.5% 6.2% 6.0% PKR Bn % of GDP Tax Revenue 4,590 6,015 7,012 8,119 11.0% 13.2% 13.9% 14.5% FBR Tax Revenue 3,922 4,967 5,952 7,055 9.4% 10.9% 11.8% 12.6% Non Tax Revenue 1,377 1,276 1,412 1,512 3.3% 2.8% 2.8% 2.7% Total Revenue 5,967 7,291 8,424 9,630 14.3% 15.9% 16.6% 17.3% Current Expenditures 8,721 9,113 9,786 10,526 20.9% 20.0% 19.4% 18.8% Development Expenditures 1,085 1,321 1,463 1,848 2.6% 2.9% 2.9% 3.3% Fiscal Decit

• 3,797
• 3,190
• 2,825
• 2,688
• 9.1%
• 7.0%
• 5.6%
• 4.8%

Gross Public Debt 36,219 39,643 42,473 45,185 86.8% 87.0% 84.2% 80.7% Net Public Debt 34,425 37,866 40,758 43,561 82.5% 83.1% 80.8% 77.8% Nominal GDP 41,727 45,567 50,443 55,991 45,567 50,443 55,991

Source: Annual Budget Statement 2020-21

Economic Highlights

– GDP growth: first time negative growth since FY52 A cost-push uptick in inflation; current account deficit narrowing but fiscal deficit further rising

Source: Budget Documents, PBS, Annual Plan 2020-21

• 2%

0% 2% 4% 6% FY16 FY17 FY18 FY19 FY20E Agriculture Industry Services Sector Real GDP Growth

• 2.0%

0.0% 2.0% 4.0% 6.0%

• 20%

0% 20% 40% 60% 80% 100% 120% FY16 FY17 FY18 FY19 FY20E Consumpon Investment Net Exports GDP - RHS 0.0% 3.0% 6.0% 9.0% 12.0% FY16 FY17 FY18 FY19 FY20E CPI (%) Avg Inaon

• 10.0%
• 8.0%
• 6.0%
• 4.0%
• 2.0%

0.0% FY16 FY17 FY18 FY19 FY20E CAD Fiscal Decit - RHS

Economic Outlook

– GDP Recovery expected in the year ahead Subdued inflation, high fiscal deficit but lower current account deficit

Source: Budget Documents, PBS, Annual Plan 2020-21

The economy is projected to recover from recession and grow by 2.1% in FY21, with growth in agriculture (2.8%), industry (0.1%) and services (2.5%). A number of measures have been announced to boost revenues. Despite a con- tained defense budget and an ambitious revenue growth target, higher debt servic- ing will limit the ability to curtail fiscal deficit. The overall fiscal deficit is projected to be PKR 3.2tn or 7% of GDP. Primary deficit, which excludes interest payments, is projected at 0.5% of GDP The headline inflation is projected at 6.5% for 2020-21 in view of weak oil prices and high base effect. The current account deficit is targeted at 1.6% (USD4.4bn) of GDP.

Salient Features

Budget FY21

PKR Bn FBR Taxes Direct Taxes Indirect Taxes Other Taxes Total Tax Revenue Non-Tax Revenue Gross Federal Receipts Less: Provincial Share Net Federal Receipt Net Capital Receipt Esmated Provincial Surplus External Resources Privazaon Proceeds Borrowing from Banking Sector Total Receipts Total Current Expenditure Debt Servicing Defence Aairs and Services Pension Subsidies Running of Civil Government Foreign Loans Repayment Others Development Expenditure Federal PSDP

• Dev. Expenditure outside PDSP
• Dev. Loans & Grants to Provinces

Total Expenditure FY20 B FY20 R FY21 B Change (%) 5,555 3,908 4,963 27% 2,082 1,623 2,043 26% 3,473 2,285 2,920 28% 267 300 501 67% 5,822 4,208 5,464 30% 894 1,296 1,109

• 14%

6,716 5,504 6,573 19% 3,255 2,402 2,874 20% 3,461 3,102 3,700 19% 832 967 1,463 51% 423

• 81

242 400% 3,032 2,273 810

• 64%

150 150 100

• 33%

339 1,724 917

• 47%

8,238 8,135 7,231

• 11%

7,288 7,376 6,345

• 14%

2,891 2,709 2,946 9% 1,153 1,227 1,289 5% 421 463 470 1% 272 350 209

• 40%

431 446 476 7% 1,095 1,245

• 100%

1,025 935 955 2% 950 759 886 17% 701 564 650 15% 86 66 70 6% 163 129 166 29% 8,238 8,135 7,231

• 11%

Working Deficit (Budgeted)

FY21

Source: Budget in brief

Budget Deficit (PKR Bn) Financing of Deficit (PKR Bn)

FBR Revenue 4,963 Gross External Loans 2,223 Gross Federal Revenue 6,573 Less: Repayments 1,413 LESS: Provincial Share 2,874 Long Term Foreign Loans 1,229 A) Federal Revenue (net) 3,700 Short Term Foreign Loans 184 B) Total Federal Expenditure (i+ii) 7,136 i) Net External Financing 810 i) Current Expenditure 6,345 ii) Domesc Financing (a+b) 2,385 ii) Development and Net Lending (a+b+c) 792 a) Bank Financing 889 a) Federal PSDP 650 b) Other Development Expenditure 70 b) Non Bank Financing 1,395 c) Net Lending 72 Public debt 1,179 C) Federal Decit (A-B)

• 3,437

Public Account 216 Esmated Provincial Surplus 242 Privazaon Proceeds 100 Primary Decit

• 0.5%

Overall Fiscal Decit

• 3,195

Total Financing of Decit (i+ii) 3,195 Overall Fiscal Decit (% of GDP)

• 7.0%

% of GDP 7.0%

Balance of Payments

(Budgeted)

Source: Annual Plan 2020-21, SBP, UBL Funds Research

Balance of Payment (USD Mn) 2016 2017 2018 2019 2020 (F) 2021 (F) Current Account (4,867) (12,621) (19,195) (13,434) (3,882) (4,447) Export 21,972 22,003 24,768 24,257 22,369 19,549 Import 41,255 48,683 55,671 51,869 41,943 37,009 Trade Decit (19,283) (26,680) (30,903) (27,612) (19,574) (17,460) Service Decit (3,406) (4,339) (6,426) (4,970) (3,049) (3,011) Income Decit (5,347) (5,048) (5,437) (5,610) (5,197) (5,992) Transfers 23,169 23,446 23,571 24,758 23,938 24,254 Remiances 19,917 19,351 19,351 19,351 21,279 21,534 Capital Account 273 375 376 229 312 320 Financial Account 6,790 10,198 13,611 11,759 6,275 10,297 FDI 2,286 2,663 2,772 1,436 2,680 3,000 FPI (429) (250) 2,257 (1,274) 420 1,250 Other Flows 4,933 7,785 8,582 11,597 3,175 6,047 Balance of Payment 2,652 (1,946) (6,128) (1,338) 2,705 6,170 SBP Reserve 19,446 16,143 10,320 7,280 9,985 16,155

Salient Features Budget FY21

Relief Measures

Reduction in FED on cement from PKR2.0 per kg to PKR1.75 per kg. Reduction in regulatory duty from 12.5% and 17.5% to 6% and 11%, respectively on Hot Rolled Coils (HRC) and iron & steel. FED increased on the import of double cabin pickup ADC removed on tariff lines which have 0% custom duty Reduced CD on 40 raw materials Reduced customs duty on 90 tariff lines from 11% to 3% and 0%. Exemption from 2% ACD on import of edible oils and oil seeds RD on several industrial inputs is also being reduced to decrease their cost of doing business Tariff protection for domestic industry by increasing/levy of regulatory duty on import of those items which are also locally manufactured Reduced ACD on Palm Stearin to support soap manufacturing industry The minimum threshold of supplies by retailers for obtaining CNIC of the buyers is proposed to be increased from PKR 50,000 to 100,000 Relief to retail sectors, which are integrated through FBR’s POS System, by reducing GST from 14% to 12% Increase in the rate of FED on cigars, cheroots, and cigarillos and cigarettes from 65% to 100% of retail price Reduction in Holding Period and Tax Rates for Capital Gain on Immoveable Property Exempting Withholding Tax on Cash Withdrawal to the extent of Foreign Remittances The tax withheld on profit on debt from such government debt instruments shall be 10% of the gross amount paid which shall constitute final tax

Stock Market

Key Measures & Impact

Corporate Tax Rate has been maintained at 29%. Banks tax rate remains at 35%. Super tax has been extended for one more year to 2021 for banks. Reduction in Holding Period and Tax Rates for Capital Gain on Immoveable Property No change in tax on dividends however, anomalies addressed in companies where dividend was taxed at 25%. Extension of Applicability of Existing Rates on Disposal of Capital Gain

• n Securities

Key Measures Impact Neutral Negative Neutral Neutral Neutral

Sectors Outlook

1/3

Sector Impact Key Measures

Banks Neutral

• Flat withholding tax on prot on debt
• Limitaon of borrowing from SBP.
• Treasury Single Account is in the nal stage of approval
• Super tax will be applicable for another year
• Removed withholding tax on remiances

E&Ps Neutral

• Connuaon of Corporate Tax Rate

OMCs Neutral

• Petroleum Development Levy (PDL) has been budgeted at

PKR450bn for FY21 from revised PKR260bn for FY20.

• Turnover tax has been maintained at 0.75% for the sector.

Power Neutral

• Power subsidy to WAPDA/PEPCO has been decreased to

PKR124bn revised from FY20 subsidy target of PKR201 bn.

Ferlizer Neutral

• For Agri Relief and to deal with the Locust situaon PKR10 bn

have been allocated

• Allocaon of PKR 12bn for food security
• Concessional rate on imported ferlizer is maintained

Sectors Outlook

2/3

Sector Impact Key Measures

Cement Posive

• Due to reducon in producon, FED on cement is reduced from

PKR 2/kg to PKR 1.75/kg which is equivalent to PKR 12.5 on a per bag basis. Cement companies will likely keep the benet as a result of which retenon prices will improve for the companies.

• Naonal Economic Council (NEC) has approved an overall size of

PSDP at PKR 1,324 bn VS the FY20 revised esmate of PKR1,613bn, a 18% YoY decrease.

• PKR 30bn have been allocated for the Naya Pakistan Housing

project

Texles Neutral to Posive

• Reducon in various raw material dues related to polyester
• Exempon of dues on imported coon
• Concession on sales tax on Coon

FMCG Neutral to Posive

• Exempon of custom dues on import of raw material by

beverage can manufacturers

• Increase in FED on caeinated energy drinks from 13% to 25%
• Exempon from 2% ACD on import of edible oils and oil seeds

under the COVID19 Relief Package.

• Exempon of dues & taxes on import of Dietec Foods for

Children with metabolic disorders.

• Exempon of Customs dues
• n inputs of Ready to use

Supplementary Foods

Sectors Outlook

3/3

Sector Impact Key Measures

Auto Neutral

• Imposion of 7.5% FED on Locally manufacturing double cabin

pick up vehicles

• Zero advance tax on vehicles below 200cc.
• Some concessions on dues on non-localized CKD kit and

components for autoparts.

Pharmaceucals Neutral to Posive

• Removal of ACD on import of APIs.
• Sales tax concession on majority of pharmaceucal goods.
• Duty free import of various parts of apparatus and life saving

drugs.

Steel Neutralto Posive

• Reducon in regulatory duty from 12.5% and 17.5% to 6% and

11%, respecvely on Hot Rolled Coils (HRC) and Iron & Steel.

• ACD on scrap is reduced to 0%

Tobacco Negave

• Increase in the rate of FED on cigars, cherootsand cigarillos

and cigarees from 65% to 100% of retail price; increase in the rate of FED on lter rods from Rs0.75 to Rs1 per lter rod.

• Levy of FED on e-liquids of electric cigarees @ Rs10 per ml.

Technology Neutral

• A sum of PKR 1 bn has been dedicated to IT and e-commerce.
• The government has allocated PKR33 bn for communicaons

and PKR 30bn for 5G and e-governance.

GDP Growth

GDP Weights FY16 FY17 FY18 FY19 FY20

Agriculture 19.31% 0.15% 2.18% 4.00% 0.58% 2.67% Crops 6.81%

• 5.27%

1.22% 4.69%

• 4.96%

2.98% Major Crops 4.20%

• 5.86%

2.60% 3.56%

• 7.68%

2.90% Minor Crops 2.23% 0.40%

• 2.51%

6.26% 2.59% 4.57% Coon Ginning 0.39%

• 22.12%

5.58% 8.80%

• 12.74%
• 4.61%

Livestock 11.69% 3.36% 2.99% 3.70% 3.82% 2.58% Fishing 0.41% 14.31%

• 2.33%

2.58% 7.87% 2.29% Forestry 0.40% 3.25% 1.23% 1.62% 0.80% 0.60% Industry 19.29% 5.69% 4.55% 4.61%

• 2.27%
• 2.64%

Mining and Quarrying 2.51% 6.19%

• 0.60%

7.80%

• 3.19%
• 8.82%

Manufacturing 12.48% 3.69% 5.83% 5.43%

• 0.66%
• 5.56%

Large-scale 9.50% 2.98% 5.64% 5.12%

• 2.56%
• 7.78%

Small-scale 2.04% 8.19% 8.15% 8.17% 8.24% 1.52% Slaughtering 0.94% 3.61% 3.55% 3.50% 3.54% 4.10% Electricity & Gas Distribuon 1.76% 9.39%

• 2.69%
• 17.21%

14.48% 17.70% Construcon 2.53% 13.68% 8.95% 10.83%

• 16.76%

8.06% Services Sector 61.40% 5.72% 6.47% 6.35% 3.75%

• 0.59%

Wholesale & Retail Trade 18.17% 4.73% 7.48% 6.57% 1.10%

• 3.42%

Transport & Communicaon 12.31% 4.89% 4.27% 1.90% 4.63%

• 7.13%

Finance and Insurance 3.60% 6.42% 11.12% 7.40% 4.99% 0.79% Housing Services 6.98% 3.99% 3.99% 3.99% 4.00% 4.02% General Govt Services 8.60% 9.72% 5.95% 11.80% 5.17% 3.92% Social & Personal Services 11.75% 6.77% 8.13% 8.86% 5.77% 5.39% Real GDP Growth 4.56% 5.22% 5.53% 1.91%

• 0.38%*

Nominal GDP (PKR Bn) 29,076 31,922 34,616 37,972 41,727 Nominal GDP (USD Bn) 279 305 315 279 264 GDP Per Capita (USD) 1,441 1,546 1,568 1,363 1,265

External Financing

External Financing (PKR Bn) FY20 B FY20 R FY21 B

A Project Loans 211 215 218 B Program Loans 277 620 504 C Other Aid 2,502 1,346 1,436 Islamic Development Bank 165 127 165 Saudi Arabia (Saudi Oil) 480 139 165 Euro Bond/Internaonal Sukuk 450 248 Commercial Banks 300 624 647 Budgetary Support from Friendly Countries 750 IMF Loan for Budgetary Support 357 457 211 I = A+ B+ C External Loans 2,991 2,181 2,158 II External Grants 28 32 21 D = I + II External Resources 3,019 2,214 2,178 E Project Loans & Grants Outside PSDP 14 59 45 III = D + E Gross External Financing 3,032 2,273 2,223

Source: Budget in brief

Public Debt & Public Account

PKR Mn FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 9MFY20 Public Debt 276,431 379,753 38,260 371,476 101,387 66,743 184,216 206,819 514,047 115,986 Prize Bond 41,083 56,334 56,175 56,427 75,885 123,902 100,445 103,899 42,852

• 156,962

Foreign Currency instruments

• 1,703
• 95

3,372

• 66

135 100

• 8

677 1,600 151 GOP Ijara Sukuk 182,354 158,943 75,640 -132,814 37,553 21,470

• 314,380

Govt.Securies

• 109,454
• 8,361

59,664 606,043 52,890 -259,282 56,760

• 73,344

590,510 157,298 Treasury Bills 164,151 172,932 -156,591 -158,114

• 27,523

164,470 5,549 175,587 15,640 115,499 Bai-Maujjal Ijara Sukuk 177,825 Public Account 196,446 147,817 341,528 184,263 269,427 127,169 92,115 120,242 248,536 293,915 Saving Schemes 192,749 131,363 329,901 139,998 260,218 108,154 82,767 98,862 261,228 317,357 GP Fund 2,860 10,177 18,615 7,383 6,812 2,423

• 1,188

2,881 12,575

• 6,723

Deposits & Reserves 837 6,277

• 6,988

36,882 2,397 16,592 10,536 18,499

• 25,267
• 16,719

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