The Bell – Elixir Securities Limited

Karachi, February 17, 2015 (PPI-OT): Economy: One-off dip in debt servicing cost limiting an otherwise higher fiscal deficit

1HFY15 fiscal update

According to latest information released by the Ministry of Finance (MoF), fiscal deficit clocked in at 2.2% of GDP during 1HFY15 as compared to 2.1% in the corresponding period last year (up by 21% in PKR terms). 2QFY15 fiscal deficit number dipped by 6% mainly due to an unusually high drop of 60% QoQ in domestic debt serving, normalization of which would have taken the 1HFY15 fiscal deficit to ~3.0%, in Elixir Securities Limited’s view.

Weak non-tax revenues and slowdown in GST limits growth in total revenues

Total revenue increased by only 4% in 1HFY15 at PKR1,749bn largely due to 24% drop in non-tax revenues and a mere 7% rise in GST head. On the expenditure side, most of the key heads (Defence, PSDP and provincial spending) increased by double digit, but the overall expenditure augmented by a mere 5% YoY in 1HFY15 due to the unusual drop in debt servicing cost.

FY15 budget deficit set to breach the target

Budget deficit target set by IMF (4.6% of GDP) and GoP (4.9% of GDP) is likely to be missed due to sticky expenditures and slowdown in GST collection head and dip in non tax revenues.

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