Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Date 21.11.2011
A Snapshot of the 2012 Budget The government projects a budget deficit of Rs.468.9Bn for 2012, down 2% YOY. The narrowing of the budget deficit is attributable to an expected 19.8% increase in government revenue and grants to Rs.1,126.1Bn, against a 14.15% increase in government expenditure to Rs.1,594.9Bn. The 2012 budget deficit (excluding grants) is targeted at 6.2% of GDP, down from 7% estimated for 2011. Government Revenue, Expenditure and Budget Deficit
Rs Bn 2,000 1,600 1,200 800 400 0 (400) (800) Government Revenue & Grants Government Expenditure Budget Deficit 2009 2010 2011 (budget) 2011 (revised) 2012 (budget)
The proposed budget deficit of Rs.433.70Bn for 2011 has fallen short by 6.1% as the budget deficit is revised to Rs.460Bn. Therefore, the ambitious deficit targets need to be monitored strictly as government has failed to meet its goals in the past. Government Revenue Income tax is expected to rise 19.01% to Rs.190.3Bn, while taxes on goods and services are set to rise 19.07% to Rs.569.4Bn. Taxes on external trade are projected to increase 27.19% to Rs.240.9Bn.
Although the revenue budget for 2011 has not been successfully achieved, the significant increase in revenue (compared to 2010) despite reductions in tax rates is a positive sign. The broadening of the tax base seems to have been broadly successful. Government Expenditure Revised recurrent expenditure/GDP in 2011 was 15.6% as opposed to the budgeted figure of 16.1% while public investment/GDP has also come down to 6% from the budgeted 6.5%. The shortfall in government revenue seems to have reduced both recurrent and capital expenditure. Compared to the revised 2011 expenditure/GDP of 21.4%, 2012 figure is projected to come down to 21.2%. Recurrent expenditure/GDPs reduction to 3
14.7% and increase in public investment/GDP to 6.6% signifies the long term growth oriented nature of the budget proposals. Total Expenditure
Rs Bn 1,200 1,000 800 600 400 200 0 2010 2011 (budget) Recurrent 2011 (revised) 2012 (budget) Public Investments Source - Budget Speech, 2012
Recurrent Expenditure
Rs Bn 400
300
200
100
0 Salaries and Wages Interest Subsidies and Transfers 2012 (budget) Source - Budget Speech, 2012 Other goods and Services
2011 (budget)
2011 (revised)
Deficit Financing Amidst governments initial motive to rely less on foreign funding in financing the deficit for 2011, foreign funding increased by 93% over the budgeted amount of Rs.94.5Bn. Even though the amount of domestic financing has decreased, use of local bank borrowings has increased by a staggering 280% to Rs.160Bn while non-bank borrowings have decreased by 63.1% to Rs.95.1Bn. Ability to attract funding from foreign sources could be seen as a positive sign. 2012 budget deficit is to be primarily funded by domestic borrowings. Domestic (63%) foreign (37%) funding mix has not changed drastically as opposed to the revised 60:40 mix achieved in 2011. The non-banking borrowings are projected to increase to Rs.207.6Bn while domestic bank borrowings are projected to reduce to Rs.64Bn. Deficit Financing
Rs Bn 400
300
200
100
0 Total Foreign Financing 2011 (budget) 2011 (revised) Total Domestic Financing 2012 (budget) Source - Budget Speech, 2012
Impact on the Macro Economy The depreciation of the rupee will have a one-off adverse impact on inflation in the short run. In addition tax increases in imported items will also exert upward pressure on inflation. Further the increase in salaries and subsidies will introduce demand-side inflation as well. Therefore we feel inflation could increase close to 9% in 2012.
CCPI Movement
%
12 10 8 6 4 2 0 Jan '10 Apr '10 Jul '10 Oct '10 Jan '11 Apr '11 Jul '11 Oct '11
YoY % change
We expect a slight increase in market interest rates over the next 12 months (due to the marginal slowdown in deposit mobilization in the banking sector and depreciation of the rupee). However the lower budget deficit projected for 2012 would lower the need for public sector borrowings which will ease the pressure on interest rates.
16 14 12 10 8 6 Jan '11 Repo rate Mar '11 May '11 Reverse Repo rate Jul '11 AWDR Sept '11 AWLR
We feel the exchange rate is likely to be stable in 2012 after the immediate depreciation due to strong capital inflows expected. The encouragement given to exporters and import substitution will augur well for the long term stability of the exchange rate. LKR/ US Dollar Exchange Rate
Rs
115
113
111
109
107 Jan '10 Apr '10 Jul '10 Oct '10 Jan '11 Apr '11 Jul '11 Oct '11
In view of the increasingly fragile nature of global economies we feel that it will be challenging to achieve a GDP growth of 8% in 2012 (although we are confident 8% could be achieved in 2011). Hence we expect the GDP growth to be between 7.5% - 8% in 2012. Impact on the Stock Market Depreciation of the rupee will benefit the export oriented companies whereas import based companies will be negatively impacted. Certain plantation companies will be adversely impacted with the distribution of the unutilised land among smallholders. However introduction of concessionary loan scheme at 8% annual interest, repayable in 7 years, to encourage planting and re-planting will be helpful to plantation companies.
Proposed infrastructure projects as well as relocation of government institutions (such as Inland Revenue Department) will benefit the manufacturing and the construction sector companies. Removal of VAT on importation of buses, lorries and trucks will be advantageous to motor sector companies that import these vehicles. Exemption of all taxes imposed at the point of Customs on the importation of Yarn will be beneficial to textile manufacturers. However garment manufacturers will get affected by the introduction of a tax of Rs.75 per Kg on imports of fabrics. Reduction of income tax on health services to 12% will be advantageous to healthcare sector. Increase in levy on outgoing and incoming international calls may have an adverse impact on the telecommunication sector.
Detailed guidelines of the above proposals need to be studied for a more comprehensive understanding of their real impact on the 8 economy.
Summary of the Budget 2009 (actual) 725.57 699.64 618.93 139.56 352.01 127.37 80.71 25.92 1,201.93 879.58 271.23 309.68 190.17 108.50 330.45 29.75 300.66 (8.10) (179.93) (476.36) 476.36 83.89 26.48 147.03 110.29 57.41 392.48 196.53 146.92 49.03 15.00 14.50 12.80 24.90 18.20 6.80 (3.70) (9.90) 2010 (actual) 834.20 817.30 724.80 135.60 435.40 153.70 92.50 17.00 1,280.20 937.10 300.60 352.60 196.20 87.70 356.50 32.50 324.00 (13.40) (119.80) (446.00) 446.00 194.90 83.00 158.10 75.10 111.90 251.10 204.10 48.90 (1.90) 14.90 14.60 12.90 22.90 16.70 6.40 (2.10) (8.00)
Total Revenue and Grants Total Revenue Tax Revenue Income Tax Taxes on Goods and Services Taxes on External Trade Non Tax Revenue Grants Total Expenditure Recurrent Salaries and Wages Interest Subsidies and Transfers Other Goods and Services Public Investment Education and Health Other Infrastructure Development Other Revenue Surplus(+)/Deficit (-) Budget Deficit Total Financing Total Foreign Financing Net Foreign Borrowings Gross Concessional Foreign Borrowings Debt Repayments Foreign Commercial Total Domestic Financing Non-bank Borrowings Foreign Investments in T Bills / Bonds Bank Borrowings Revenue and Grants/GDP (%) Revenue/GDP (%) Tax/GDP (%) Expenditure/GDP (%) Current Expenditure/GDP (%) Public Investment/GDP (%) Revenue Surplus (+)/ Deficit (-)/ GDp (% ) Budget Deficit/ GDP (% ) (Excluding Grants)
Rs Bn 2011 (budget) 986.10 963.50 862.10 154.90 495.50 211.80 101.40 22.60 1,419.90 1,017.00 344.00 353.90 207.30 111.70 413.70 54.00 359.70 (10.80) (53.40) (433.70) 433.70 94.50 94.50 189.50 115.00 20.00 339.20 339.20 39.60 42.00 15.60 15.20 13.60 22.40 16.10 6.50 (0.80) (6.80)
2011 (revised) 937.00 923.20 827.50 159.90 478.20 189.40 95.70 13.80 1,397.20 1,018.80 321.20 355.40 212.90 129.30 389.00 39.80 349.20 (10.50) (95.20) (460.00) 460.00 183.10 73.60 163.60 90.00 109.50 277.10 95.10 22.00 160.00 14.30 14.10 12.70 21.40 15.60 6.00 (1.50) (7.00)
2012 (budget) 1,126.10 1,106.10 1,000.60 190.30 569.40 240.90 105.50 20.00 1,594.90 1,107.90 367.90 370.00 236.40 133.50 497.50 45.40 452.10 (10.40) (1.80) (468.90) 468.90 175.30 120.30 270.30 150.00 55.00 293.60 207.60 22.00 64.00 15.00 14.70 13.30 21.20 14.70 6.60 (6.20)
This document is based on information obtained from sources believed to be reliable, but we do not make any representations as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken as substitution for the exercise of judgment by addressee. N D B Stockbrokers (Pvt) Ltd and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.