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% In � a � on 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 De � cit -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 Consump � on Investment Net Exports GDP - RHS Agriculture Industry Services Sector Real GDP Growth 120% 6.0% 6% 100% 4% 4.0% 80% 60% 2% 2.0% 40% 20% 0% 0.0% 0% -2% -20% -2.0% FY16 FY17 FY18 FY19 FY20E FY16 FY17 FY18 FY19 FY20E A cost-push uptick in inflation; current account deficit narrowing but fiscal deficit further rising 12.0% 0.0% 9.0% -2.0% 6.0% -4.0% 3.0% -6.0% 0.0% -8.0% FY16 FY17 FY18 FY19 FY20E -10.0% FY16 FY17 FY18 FY19 FY20E CPI (%) Avg In � a � on CAD Fiscal De � cit - RHS Source: Budget Documents, PBS, Annual Plan 2020-21

Economic Outlook – GDP Recovery expected in the year ahead 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%). Subdued inflation, high fiscal deficit but lower current account deficit 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. Source: Budget Documents, PBS, Annual Plan 2020-21

Salient Features Budget FY21 PKR Bn FY20 B FY20 R FY21 B Change (%) FBR Taxes 5,555 3,908 4,963 27% Direct Taxes 2,082 1,623 2,043 26% Indirect Taxes 3,473 2,285 2,920 28% Other Taxes 267 300 501 67% Total Tax Revenue 5,822 4,208 5,464 30% Non-Tax Revenue 894 1,296 1,109 -14% Gross Federal Receipts 6,716 5,504 6,573 19% Less: Provincial Share 3,255 2,402 2,874 20% Net Federal Receipt 3,461 3,102 3,700 19% Net Capital Receipt 832 967 1,463 51% Es � mated Provincial Surplus 423 -81 242 400% External Resources 3,032 2,273 810 -64% Priva � za � on Proceeds 150 150 100 -33% Borrowing from Banking Sector 339 1,724 917 -47% Total Receipts 8,238 8,135 7,231 -11% Total Current Expenditure 7,288 7,376 6,345 -14% Debt Servicing 2,891 2,709 2,946 9% Defence A � airs and Services 1,153 1,227 1,289 5% Pension 421 463 470 1% Subsidies 272 350 209 -40% Running of Civil Government 431 446 476 7% Foreign Loans Repayment 1,095 1,245 0 -100% Others 1,025 935 955 2% Development Expenditure 950 759 886 17% Federal PSDP 701 564 650 15% Dev. Expenditure outside PDSP 86 66 70 6% Dev. Loans & Grants to Provinces 163 129 166 29% Total Expenditure 8,238 8,135 7,231 -11%

Working Deficit (Budgeted) FY21 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) Domes � c 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 De � cit (A-B) -3,437 Public Account 216 Es � mated Provincial Surplus 242 Priva � za � on Proceeds 100 Primary De � cit -0.5% Overall Fiscal De � cit -3,195 Total Financing of De � cit (i+ii) 3,195 Overall Fiscal De � cit (% of GDP) -7.0% % of GDP 7.0% Source: Budget in brief

Balance of Payments (Budgeted) 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 De � cit (19,283) (26,680) (30,903) (27,612) (19,574) (17,460) Service De � cit (3,406) (4,339) (6,426) (4,970) (3,049) (3,011) Income De � cit (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 Remi � ances 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 Source: Annual Plan 2020-21, SBP, UBL Funds Research

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

Sectors Outlook 1/3 Sector Impact Key Measures � Flat withholding tax on pro � t on debt � Limita � on of borrowing from SBP. Banks Neutral � Treasury Single Account is in the � nal stage of approval � Super tax will be applicable for another year � Removed withholding tax on remi � ances � E&Ps Neutral Con � nua � on of Corporate Tax Rate � Petroleum Development Levy (PDL) has been budgeted at PKR450bn for FY21 from revised PKR260bn for FY20. OMCs Neutral � Turnover tax has been maintained at 0.75% for the sector. � Power subsidy to WAPDA/PEPCO has been decreased to Power Neutral PKR124bn revised from FY20 subsidy target of PKR201 bn. � For Agri Relief and to deal with the Locust situa � on PKR10 bn Fer � lizer Neutral have been allocated � Alloca � on of PKR 12bn for food security � Concessional rate on imported fer � lizer is maintained