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Fiscal deficit likely to rise to 7% of GDP – Alfalah Securities Limited

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by January 27, 2012 Brokerage

Karachi: According to a reported article in the newspaper, Pakistan’s fiscal deficit for FY12 is expected to reach 7% of the GDP which is in line with Alfalah Securities Limited’s projection of 6.5-7%.

According to Alfalah Securities Limited, Fiscal deficit is expected to widen due to a rise in the current expenditure on account of power subsides which may cross PKR 350 billion mark against the budgetary allocation of PKR 50 billion, and expected lower revenue collection from target. Heavy government borrowing from the banking sector for funding fiscal deficit would result in heating up inflation. Therefore, Alfalah Securities Limited believes, the continued borrowing would provide a reason to the central bank to resort to a tight monetary policy stance to control rising money supply in the system. Therefore, Alfalah Securities Limited expects State Bank of Pakistan would not pass on the major impact of inflation ease off in the discount rate in anticipation of higher inflation going forward. Alfalah Securities Limited may see only a 50bps cut if not kept unchanged in the upcoming monetary policy statement even if the inflation remain tamed in January.

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