Govt may miss deficit target

KARACHI The government is unlikely to meet an ambitious fiscal deficit target of Rs 975 billion, or 4.5 per cent of GDP in the fiscal year 2011-12 in an anticipation of weak taxation implementation, rising security challenges and limited external inflows, the experts said on Saturday. The financial managers of the country have to play a balanced role to meet an ambitious consolidated fiscal deficit target of Rs849 billion (4pc of GDP) at one end, while providing impetus to economic recovery to achieve the GDP growth target of 4.2 per cent, according to economic experts. With the total tax revenue FBR tax collection for FY12 is projected to stand at Rs1.952 trillion (9.1pc GDP), up 22 per cent from the revised target of Rs1.588 trillion in FY11. This target would be on a higher side and much will be dependent on the actual implementation of the taxation measures and tax administration which the government has embarked in FY12, said a research analyst at JS Global. Overall, the government has targeted a federal fiscal deficit of Rs975 billion (4.5pc of the GDP) while with Rs125 billion cash surplus from provinces consolidated deficit is expected to be Rs850 billion (4pc of GDP). This looks difficult to achieve in light of taxation measures and eventually the government would lower its development spending, he said. The fiscal deficit is projected to be primarily financed through indigenous sources with 84 per cent from domestic sources, the analyst predicted. The overall theme of the budget is to protect the fragile recovery by curtailing non-developmental expenditure, effective implementation of new tax measures and elimination of untargeted subsidies, said a research analyst at Topeline Securities Limited. Meanwhile, a research report released by a local brokerage house clearly stated that the discontinuation of flood surcharge and non mention of GAT keep the budget neutral for the equity market on the whole. Further, the continuation of CGT for individual investors would keep the investor participation low in the market in the months to come. However, no change in the corporate tax regime for banking and insurance companies eliminates the risk of earnings and valuation downgrade while the reduction in excise duty for cement is likely to bode well for the cement manufacturers. Analysing the impacts of the FY12 budget on the banking sector, the report said reduction in Withholding Tax (WHT) is expected to improve deposit base slightly. Govt reliance to finance 84 per cent of Rs 850 billion deficit from local sources mean more dependency on local bank and non bank borrowing that will keep interest rate high and resultantly net interest income (NIM) will remain strong. Similarly the carry over of bad-debts in excess of 5 per cent would be slightly positive for the banking sector. It might be mentioned here that no changes in corporate tax on banks and no taxation on investment in government papers have been annop9unced by the government in this budget. About cement sector, the report said that the FED reduced by Rs200/ton (Rs10/bag) to Rs500/ton. FED which was increased to 2.5 per cent (Rs7-8/bag) in March11 is completely removed. According to the report, reduction in GST from 17 per cent to 16 per cent would reduce bag prices by Rs3-4/bag. Increase in PSDP to Rs730 billion and plans to complete old projects will increase cement demand in FY12. Cut in FED, removal of FED and 1 per cent reduction in GST would have a cumulative impact of Rs21/bag (Rs420/ton). Initially the companies will be pass on the benefit to end users. However this will provide room for increase in cement prices going forward to cover the inflationary costs, the report mentioned.